What would happen if all mergers and acquisitions (M&A) were illegal?
It is a hypothetical question: what impacts would it have if businesses were not allowed to merge with or buy other businesses – including competitors? Do you think this would rather have a positive effect on the worldwide economy and wellbeing or do you think this would have adverse effects – if so which?
I for myself see with the ban of M&A real opportunities which may cancel out some of the capitalisms largest challenges:
- Businesses – or startups as we call it nowadays – will not merely be started to get rich by selling the company 5 years from today. Instead, founders will think twice whether they pursue a certain business simply to get rich or because they actually love the business behind it.
- Without any M&A activities, it will be much harder for companies to become monopolies like Google or Facebook. Without the numerous acquisitions they did, both companies would not be in their today’s monopolistic position. As the impossibility of mergers and acquisition will necessarily lead to smaller and more assessable organizations, I argue that those smaller corporations will actually be more centered around the well-being of their customers instead of their shareholders. Think about the big scandals of the large multinational food-corporations and pharmaceutical corporations.
- When M&A transactions are impossible, companies cannot own large percentages of stocks anymore. Therefore, only natural persons will be shareholders of future companies. Natural persons can then have a real voice and actually have a say in corporate decision making. Might this lead to better decision for the all people involved in business transactions – from child labor in Africa to the 87 year old consumer?
The Negatives of a Non-M&A Market?
However, there are also a few problems which come to my mind.
The first problems are family business owners or Mittelstand businesses whose owners only want to get out of the business and retire. A possible solution would be to legalize the acquisition through natural persons only. In this way, people can buy themselves into a business as a natural person, not as a corporation. The second option would be to drastically simplify the possibilities of public offerings for small and medium-sized companies. This may be imagined as a “Mini-IPO” where owners buy themselves out to the public and where the future shareholders then appoint new management for the company. This may even create super exciting investments for local communities. Imagine the residents of a local town do own parts of the local businesses.
The second question I ask myself is whether an M&A ban will slow down innovations. I think about all the inventors and entrepreneurs who are passionately inventing new products and technologies but who do not want to run the actual business. While they may hire a good manager, it might also be that some or many lose their motivation of pursuing innovations when there is no quick payoff in sight.
The third doubt is entrepreneurs who build businesses to sell them to start a second and more capital intensive business. A prime example would be Elon Musk who started with rather simple internet businesses and who is now involved in SpaceX, TESLA, SolarCity and more.
M&A Ban – Good or Bad?
It may be that a ban on M&A transactions will have a positive effect on our world. However, if M&A is forbidden, the ease of going public must be drastically lowered. This might happen in the traditional IPO settings or decentralized as part of a regulated ICO.
What do you think? What are possible advantages or disadvantages of an economy without M&A? What about high taxation of M&A transactions? Please leave a comment below and join the discussion! I think it is a fascinating topic to discuss.