Is merger mania back?

It’s the busiest first half-year for mergers and acquisitions since the height of the credit bubble in 2007.


Deals worth $1.83trn were agreed worldwide in the first half of 2014. That's up 41% on the same time last year, and it's the busiest first half for mergers and acquisitions (M&A) seen since the height of the credit bubble in 2007.

There are several reasons for the M&A comeback. As the slow, but steady economic recovery has taken hold, firms have become more confident. They have plenty of cash with which to scoop up rivals and expand their exposure to promising markets: about $7.5trn, according to Thomson Reuters. Rising share prices mean that buyers who pay for mergers with stock (rather than cash) also have "a stronger currency", says John Authers in the Financial Times. And as for debt financing, it has never been this cheap to borrow money. In short, "it really is a bit of a perfect storm when it comes to dealmaking", says Frank Aquila of Sullivan & Cromwell LLP.

The boom looks set to continue. There are pockets of irrational exuberance' drugmaker Merck offered to buy a biotech firm last month at 240% above its market value, for instance but the market doesn't look especially frothy yet. Alistair Gunn of Jupiter Asset Management notes that companiesaren't overextending themselves asthey were at the top of the marketin 2007.

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Back then, companiestypically borrowed too much cashand spent it on their targets. Today,they tend to use their own stock, or a mixture of stock and cash. Meanwhile, M&A represents only a small proportion of the total value of global stocks, compared to previous peaks, says Andrew Milligan of Standard Life. At the tops in 2000 and 2007, M&A comprised 10% and 6% of the combined value of global stocks respectively. Now the figure is under 2%.

The ongoing revival will reinforce, and be reinforced by, rising markets, says Authers in the FT. "Bid speculation helps raise the price of potential targets, whilethe aura of excitement and success around the acquirers helps ensure that their prices do not suffer as a result."Of course, in the long run, M&A is "a great process for creating fees for bankers, and for destroying the valueheld by shareholders". But expect the boom to continue for now.

Andrew Van Sickle

Andrew is the editor of MoneyWeek magazine. He grew up in Vienna and studied at the University of St Andrews, where he gained a first-class MA in geography & international relations.

After graduating he began to contribute to the foreign page of The Week and soon afterwards joined MoneyWeek at its inception in October 2000. He helped Merryn Somerset Webb establish it as Britain’s best-selling financial magazine, contributing to every section of the publication and specialising in macroeconomics and stockmarkets, before going part-time.

His freelance projects have included a 2009 relaunch of The Pharma Letter, where he covered corporate news and political developments in the German pharmaceuticals market for two years, and a multiyear stint as deputy editor of the Barclays account at Redwood, a marketing agency.

Andrew has been editing MoneyWeek since 2018, and continues to specialise in investment and news in German-speaking countries owing to his fluent command of the language.