M&A boom will run with the bull

Merger and acquisition (M&A) deals have had the best start to a year since the peak of the last boom in 2007.

The mergers and acquisitions (M&A) recovery is speeding up. May saw more than $240bn worth of deals in the US, the busiest month since records began in the 1980s. Globally, there have been $1.7trn of deals since the beginning of the year, the best start to a year since the peak of the last boom in 2007.

Charter's $78bn bid for Time Warner Cable, a record deal in the cable sector, and Avago's $35bn takeover of Broadcom, a blockbuster deal in the semiconductors sector, are the latest big deals to hit the headlines.

It's no wonder that deals are flourishing. Companies have rebuilt their cash piles since the crisis, while rock-bottom interest rates make it cheap to borrow to finance takeovers. Rising stock prices and the gradual economic recovery have fuelled confidence in boardrooms.

Bankers and lawyers expect 2015 to be a record year, "with chief executives under pressure to expand their businesses and deals constituting the fastest and easiest way to achieve that growth", say James Fontanella-Khan and Robin Wigglesworth in the Financial Times.

The pick-up is long overdue, as Alexander Eule points out in Barron's. M&A is a coincident indicator it usually rises along with markets. But in the five years after the crisis the typically strong link between the S&P 500 and global M&A broke down. It seems the historically sub-par recovery meant that company directors took much longer than usual to decide it was for real. Now their animal spirits are back "a least as long as the bull still runs".

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