M&A boom is another sign of a top

Global dealmaking in 2018 has already exceeded the $1trn mark, the fastest start to a year on record, say Eric Platt and James Fontanella-Khan in the Financial  Times. Mergers and acquisitions (M&A) are on the rise everywhere, with the US leading the charge. It accounts for six of the top-ten global deals by value. Activity in Japan and Britain has more than doubled from a year ago. Global M&A activity is up 50% on a year ago.

The two biggest deals so far this year are US health insurer Cigna’s $67bn takeover of pharmacy benefits manager Express Scripts and German utility Eon’s acquisition of renewable-energy group Innogy for €43bn. Buoyed by economic growth and solid business confidence, bankers have signed a series of $10bn-plus deals in 2018. Last year’s US tax cuts have added fuel to the fire as they’ve freed up capital to spend.

But is the boom morphing into a bubble? M&A is a coincident indicator, flourishing when investors and businesses feel confident due to a solid economic backdrop. It also tends to reach peaks as markets and economies turn, as highs in 2007 and 2000 illustrate. This time round, the M&A scene has felt toppy for some time. We have had four straight years with more than $3trn-worth of deals, while 2015 marked the latest peak year with almost $5trn of deals. The latest acceleration, perhaps ominously the fastest start to a year since 2000, feels like another sign that this long bull market will soon end.