The $11 billion merger between US Airways and American Airlines offers a striking example of current trends in mergers and acquisitions: strategic acquisitions.
The US Airways and American Airlines merger is an all-stock deal that should bring cost benefits and synergies which allow the company to better handle fixed assets. In order to remain viable in a competitive industry with high fixed costs, airlines need to be bigger and have a wider footprint. US Airways and American Airlines are accomplishing this by combining. According to Reuters, this merged entity would create the world’s largest airline by passenger traffic.
Contrast this deal with TXU, which went private in 2006. Private equity bought TXU in one of the biggest recorded leveraged buyouts. The 2000s were the era of the financial buyers, primarily focused on the immediate cash value of a deal. Now, there are more and more strategic buyers. The privatization of Dell is another example. Dell is going private largely for strategic reasons, which I blogged about last week. The move allows Dell to become a nimbler company and leverage their strategic relationship with Microsoft.
The M&A world is placing more emphasis on strategy. We are in the era of strategic acquisitions.