M&A Titans: The Pioneers Who Shaped Wall Street's Mergers and Acquisitions Industry

by Brett Cole

This book focuses on the 11 men, lawyers and bankers, who are responsible for the creation of Wall Street's merger industry. It specifically concentrates on the events and personalities who dominated Wall Street during the takeover battles of the 1970s and 1980s. Lawyers Joe Flom and Marty Lipton, the godfathers of modern M&A, educated bankers on takeover laws and regulations as well as tactics. Flom and Lipton were also superlative businessmen who built their own firms to become Wall Street powerhouses. The two men drew into their orbit a circle of bankers. Felix Rohatyn, Ira Harris, Steve Friedman, Geoff Boisi, Eric Gleacher and Bruce Wasserstein were close to Lipton. Robert Greenhill and Joe Perella were close to Flom. M&A Titans provides insight into the culture of the different investment banks and how each of the bankers influenced the firms they worked in as they became more powerful. Some such as Gleacher, Harris, Wasserstein, Perella and Greenhill clashed with the men running their firms and left. Others such as Friedman and Boisi stayed and profoundly influenced how the firm did business. The career of Michael Milken, perhaps the notorious name on Wall Street in the 1980s, is also examined as well as the actions and tactics of his firm, Drexel Burnham Lambert. Milken and Drexel paved the way for the growth of private equity and helped popularize attacks on management by investors such as Boone Pickens and Carl Icahn.

Genres: Finance, Business, Law

240 pages, Hardcover

First published August 20, 2008

Reviews

[Yifan (Evan) Xu (Hsu) · Rating 2 out of 5]

I am not trying to overly critical, but have to say this book is less than what I had expected. It took me less half a day, and my first impression upon finishing the book was that it was simply a story collection with lousy organization. It walks you through those historical figures in the US M&A industry individually without a coherent thesis. Some chapters are filled with stories obtained from various sources, and these chapters' organizations are in total chaos; some chapters aren't focusing on those titans at all. The unity of narrative is impaired by all too many sudden shifts of focus, and it's hard to summarize or characterize those figures succinctly except for rephrasing those loosly associated points.
　　
　　This book lessoned me that one should expect those top selling books to imply anything but academic sincerity and impeccable logical reasoning. Nonetheless, despite of these shortcomings, there are many stories and historical information worth mentioning. These info. center arround four major themes:
　　
　　1. Personal sketch of M&A titans
　　2. Early deveopment of M&A industry
　　3. Insights of M&A business
　　4. Organizational culture in the M&A departments
　　
　　
　　1. Personal sketch of M&A titans
　　
　　All these M&A pioneers may come from different ethic backgrounds, received different educations, entered the industry at different ages and reach the peak of their career at different times and ages. However, there are several things that are strikingly similar among them.
　　(1) Almost all of them had childhoods somewhat involved proverty. Because most of their parents are second generation immigrants, their families struggled financially in their childhood.
　　(2) Such childhood experience rendered them a strong desire for wealth with no exception.
　　(3) They all had contacted with business when they were children and obtain social experience that was above average children at their ages.
　　(4) They all attended high-ranking but not necessarily the very top business schools or law schools; they all were top students, often not in the very top 1% rank.
　　(5) They all had extremely large intellectual capacities, and their potential weren't fully utilized until they started working.
　　(6) They all loved their job and demonstrated great among of enthusiasm, even though such love and passion could be argued to come from desire for money.
　　(7) They all had social skills to relate to people, expecially the executives and board memebers.
　　(8) Many of them didn't start their careers in M&A as analyst.
　　
　　Thus, it seems to me that good education, love for wealth, passion for work, high intelligence and decent business communication skills are imperative to a successful career in M&A.
　　
　　
　　2. Early development of M&A Industry
　　
　　The US M&A industry has been through several big waves. The book is about the 4th wave occuring in 1960s-1980s. This wave started with a change of M&A related regulation. In 1968, William Act was enacted causing alternations in the legal framework of M&A business. The pioneers who first mastered the technical aspects and started to preaching to others were two lawyers: Marty Lipton and Joe Flom. At that time, lawyers were more important than bankers in terms of strategy and deal making.
　　
　　Updates in accounting rules also facilitated the transformation of M&A industry. Jimmy King, Harold Green and Tex Thornton initiated large volume of M&A activities by taking advantage of accounting rule, in which goodwill wasn't charged against earnings and there was no write-offs in a deal.
　　
　　
　　3. Insight into M&A business
　　
　　A few valuable insights scattered throughout the book. In early chapters, the book stressed that the legal framework defines the scope of M&A strategy, and insights into the M&A laws are imperative for M&A bankers. Wasserstein was an exceptional example. Many bankers would understand the direct consequences of changes in takeover laws, but only Wasserstein and a few others know the second- and third-order consequences of the changes. Wasserstein was a master of the technical aspects of the take over law as it evolved.
　　
　　In addition. public relations could be an equally essential component in M&A deals. Many would use presss to signal or smokescreen their takeover tactics in an effort to boost bidding price and maximize client's value. Such acts require good relationships with press, and a PR firm is always required in a M&A deal.
　　
　　In the M&A marketplace, the greatest advantage of bankers over other participlants is asymmetric information they possessed in a deal. They would know more about a deal's market place conditions, financing status, legal issues and other aspects more than their clients and targets. Therefore, they could use that advantage to play merger as a chess game so as to benefit the clients as well as themselves.
　　
　　
　　4. Organizational culture in the M&A departments
　　
　　Among investment banks, two things universally applied to all banks stand out in the book. First, the M&A reputation in any firms primarily come from their star bankers. This was especially true in early days. Later, experience and expertises in various industries compensated for lack of star M&A bankers. Second, in M&A and other corporate financing businesses, investment banks had exclusive relationship with their corporate clients. Bankers were loyal to their customers, as the customers were to the bankers. If a banker from a third bank wanted to pitch a M&A deal to a firm who is the customer of a competitor bank, he needed to visit the competitor and presented it to them first. The author also suggested that the nature of such tight relationship hasn't changed.
　　
　　When looking at orgnizational culture difference between investment banks, a distinction between Goldman Sachs and Morgan Stanley almost immediately reveals itself. In Morgan Stanley, M&A department resemble a small kingdom inside a large kingdom. The department often fought for fees with another departments, and they were psychologically guarded and conservative about cooperating with other departments. On the other hand, in Goldman Sachs, M&A department was the catalyst for cross-department cooperation. M&A people would seek help from arbitrage department to learn about estimation of market reaction of a future M&A event, from research department to understand dilution issues and from debt department to determine the amount and duration of debts that a firm can raise during a hostile takeover.
　　
　　In addition, in Goldman's M&A department, its culture is somewhat similar to military culture, where each individual holds non-overlapping duties and obey orders from above. Such culture also stresses team work and voluntary assistance given to others.
　　
　　
　　Overall, the book serves well as a general educational source for anyone who wants to know some history and stories of heros of M&A. But its lack of technical and academic discussions does not widen but limit its readership, since many who intended to dig out some insights of M&A strategies would be disappointed and cease to read. Just like me.

[Library of · Rating 3 out of 5]

Not the easieast / most entertaining read. But gives some good backgorund and information about the stock market, and the M&A activites, during the 1980s. Below are my notes. More summaries on other books can be found on www.libraryof.xyz

M&A Titans is about the lawyers and investment bankers who created Wall Street’s M&A industry in the 1970s and 1980s. It was during this era that men like Michael Milken, T. Boone Pickens, Carl Icahn, Joe Flom and Marty Lipton would rise to the top. The book provides insight into the culture of the various investment banks and the roles of the big names that changed the entire financial industry.

THREE PREVIOUS M&A WAVES. The first wave of mergers lasted from 1893 to 1904. It was characterized by the consolidation of manufacturing and mining companies. The second wave was from 1919 to the crash of 1929 when the theme was vertical integration. In addition to car manufacturing, Ford had its own steel mills, railways and ore ships. The third wave of mergers was the conglomerate era from 1955 to 1969.

THE OIL INDUSTRY STARTED THE TAKEOVER ERA. In the early 1970s, the U.S. economy went into a recession and the stock market plummeted. OPEC had shocked the world with the first real oil price increase. But despite the fact that oil prices had soared, the share prices of large American oil producers were unaffected. This meant that it was cheaper to buy oil on Wall Street than to drill for it. In addition, inflation had caused greenfield costs to rise.

IT BEGINS IN THE 1970s. Although acquisitions have always been part of the business and finance world, it was not until the mid-1970s that concepts such as “merger departments” and “acquisition specialists” began to emerge. The Dow fell 28% in 1974, its worst year since 1937. The combination of little work and low valuations led a small group of bankers and lawyers to discover that M&A counseling could be a lucrative industry. What was also new was that acquisitions could be forced through as hostile takeovers – something that basically had not happened before.

REAGAN & VOLCKER CREATES A FERTILE SOIL. In the 1980s, Ronald Reagan was a patron saint on Wall Street. His government, which took office in 1980, had a laissez-faire market philosophy, which advocated acquisitions and mergers as they resulted in efficient capital allocation. Fed Chairman Paul Volcker also stifled inflation, thereby restoring market confidence in asset values. In the early 1980s, the underlying values of net assets in American companies were significantly greater than the companies market capitalizations.

FOREIGNERS FINDS BARGAINS IN THE US. The depressed stock market attracted foreign companies to buy American companies cheaply. They were not subject to Federal Reserve restrictions on borrowing money. The Dutch electronics giant Philips opportunistically bought Magnavox consumer electronics. That same year, the Swiss chemical and agricultural company Ciba-Geigy bought Funk Seeds International.

“If you’re trying to lead people in a competitive enterprise, what’s a more competitive enterprise than warfare? My view is that everything managerially you want to know is in military history” – Steve Friedman

WALL STREET’S BEST DECADE. In 1980, 97 acquisitions worth $18 billion were completed on the US stock market. Just eight years later, more than 3,500 acquisitions totaling $366 billion were completed. In 1982, the largest bull market in the history of Wall Street began. A part from some minor down bounces, especially in 1987, the boom lasted for 18 years.

THE KING OF JUNK BONDS. Michal Milken was one of the biggest and most infamous names on Wall Street in the 1980s. Through Drexel Burnham, he created the junk bond market and helped finance a large part of the acquisitions – friendly as well as hostile – that took place during the decade. Financiers such as T. Boone Pickens and Carl Icahn made extensive use of Drexel Burnham’s services and were thus able to quickly take on even the largest companies. Milken was one of the highest earners during the takeover era and only in the year of 1987 did he take out a salary of $550m. However, things did not end well for Milken, who in 1989 was convicted of securities fraud and conspiracy. He was fined $600m and sentenced to 22 months in prison.

“An investment banker, it’s a man that’ll hunt with anybody who’s got a gun.” – T. Boone Pickens

THE BIRTH OF POISON PILLS. In response to the hostile takeovers, in 1982, the lawyer Martin Lipton developed the embryo for what would later become known as the “poison pill”. The term derives its original meaning from a poison pill carried physically by spies throughout history, which was swallowed when they were discovered to eliminate the possibility of being interrogated by the enemy. Usually, “poison pills” were changes in the articles of association regarding how long board members serve, dividend rights to shareholders or opportunities for the board to carry out defensive new issues of shares or options.

[Dao Le · Rating 2 out of 5]

Would give it 2.5 stars if it’s an option. While properly researched, this book totally lacks structure with sentences that just throw out facts after facts without proper narrative. Once in a while there are funny little tidbits or witty conversations, but it fails as a financial history book.

Cool cover though.

[Mike Adeleke · Rating 5 out of 5]

This book is a great overview of the men who created the modern world of mergers & acquisitions. Until really the 1980s there wasn't much emphasis on M&A at investment banks and most banks did not even had one. Men like Wasserstein, Perella, Boisi, and other helped to spearhead this new industry and lawyers like Flom and Lipton helped to make it official.

[Kevin · Rating 3 out of 5]

Interesting book. It felt like a lot of finance historical porn. Didn't really reveal anything deeply insightful. I didn't get that much out of it. Seemed to be more descriptive than prescriptive. Don't regret reading it.