A review of corporate restructuring activity, 1980-90.

After running at an extraordinary pace in 1988 and 1989, corporate restructuring activity and the associated retirement of equity fell sharply in 1990. The remarkable strength in the final two years of the 1980s occurred despite measures, taken at the federal and state levels, to discourage takeover activity. Reflecting restructuring activity, net retirements of equity by nonfinancial corporations surged to a record $130 billion in 1988 and receded only slightly in 1989 to $124 billion.

Presaged by the collapse of the proposed union-led leveraged buyout of United Air Lines and the financial hemorrhaging of the Campeau retailers, the 1990 retreat of corporate restructuring activity occurred as financing costs rose sharply and prices for asset sales weakened. Nonetheless, the volume of mergers and acquisitions was substantial, as reflected in the $63 billion total of net equity retirements, which vastly exceeded that of any year prior to 1984, when the current merger wave began.

This study has two purposes. One is to discuss these recent developments more fully by placing them in the context of the merger activity that occurred in the 1980s. The second is to present aggregate estimates of merger and acquisition activity that form the basis of net equity retirements published in the Federal Reserve flow of funds accounts. Throughout the study, the focus is on the nonfinancial corporate sector. Moreover, the estimates of merger activity deal only with transactions by the nonfinancial corporate sector that result in the retirement of equity. An appendix contains a detailed description of these estimates and of some other measures of merger and acquisition activity; it also includes information on the largest individual transactions that have occurred in recent years.