The M&A party is almost over

Last year turned out to be the second-best for global mergers and acquisitions (M&A) since 2007. The total volume of M&A for 2016 was $3.6trn, a 17% drop from 2015's record $4.37trn.

The US accounts for around half of dealmaking, and there the outlook is auspicious. President-elect Donald Trump is hoping to encourage US firms to bring back some of the money they have stockpiled overseas to avoid taxes. If his tweak to the tax code works, much of the money seems likely to be spent on acquisitions. And "apart from available funds, the other big driver of M&A is CEO confidence", says Brooke Sutherland on Bloomberg.com. The Trump-induced rally thus bodes well.

Still, valuations are getting pricier, and the prospect of rising US interest rates may temper enthusiasm given how much of the M&A boom has been based on rock-bottom borrowing costs, making it cheap to borrow to snap up rivals. The broader problem is that the equity rally could rapidly reverse if Trump opts for protectionism or if the euro crisis returns. The M&A party "isn't over", reckons Sutherland, "but it's getting long in the tooth".

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