M&A: why companies are eyeing each other up

Merger and acquisition (M&A) activity is very nearly back to 2007’s record levels.

"Companies are chasing each otherlike hormone-addled teenagers," says Jeffrey Goldfarb on breakingviews.com. Merger and acquisition (M&A) activity is very nearly back to 2007's record levels. Globally, there have been almost $2trn worth of deals so far this year, a 36% jump on a year ago. In the US, overall deal activity has hit $841bn, also an eight-year high. And firms are "putting on a nearly unprecedented show of bravado".

Hostile (unsolicited) bids have made up 12% of all deals this year, the highest proportion since 1999's record. Last weekend, more than $108bn of potential deals were rejected in the US, notably healthcare group Cigna's rejection of a $54bn bid from larger rival Anthem.

Industries are rapidly consolidating, and "nobody wants to be left alone", says Morgan Stanley's Jim Head in the Financial Times. And failing to carry off a hostile bid has lost its stigma. With less risk of a decline in the stock in the event of a failure, firms are more inclined to risk it, adds Greg Lemkau of Goldman Sachs.

An M&A upswing always accompanies buoyant economies and stockmarkets. Companies that have rebuilt cash piles become more confident and try to bulk up by merging with or buying rivals. But this time round, record-low interest rates have been a central ingredient, encouraging firms to borrow in order to buy peers. And firms feel they'd better get on with it. With the Fed set to move soon, the low-rate environment, says Bank of America Merrill Lynch's Simon Mackenzie Smith, "is coming to an end".

Recommended

Kieran Heinemann: the history of shareholder capitalism
Investment strategy

Kieran Heinemann: the history of shareholder capitalism

Merryn talks to Kieran Heinemann, author of Playing the Market: Retail Investment and Speculation in Twentieth-Century Britain, about the history of t…
17 Sep 2021
Why it pays to face up to your investment mistakes
Investment strategy

Why it pays to face up to your investment mistakes

Buying stocks can be a complicated business. But selling stocks can be tricky, too – even if you sell for the right reasons. Max King explains how to …
17 Sep 2021
Are stockmarkets heading for a fall?
Stockmarkets

Are stockmarkets heading for a fall?

America’s S&P 500 stockmarket index has gained 30% over the past year. Valuations may be high, but that doesn't necessarily mean investors should sell…
17 Sep 2021
A nightmare 1970s scenario for investors is edging closer
Investment strategy

A nightmare 1970s scenario for investors is edging closer

Inflation need not be a worry unless it is driven by labour market shortages. Unfortunately, writes macroeconomist Philip Pilkington, that’s exactly w…
17 Sep 2021

Most Popular

The times may be changing, but don’t change how you invest
Small cap stocks

The times may be changing, but don’t change how you invest

We are living in strange times. But the basics of investing remain the same: buy fairly-priced stocks that can provide an income. And there are few be…
13 Sep 2021
Two shipping funds to buy for steady income
Investment trusts

Two shipping funds to buy for steady income

Returns from owning ships are volatile, but these two investment trusts are trying to make the sector less risky.
7 Sep 2021
How to stop recurring subscriptions becoming a drain on your money
Personal finance

How to stop recurring subscriptions becoming a drain on your money

Tracking and pruning subscriptions isn’t as easy as it sounds. Here's how to take charge.
14 Sep 2021