Mergers & Acquisitions
Heading into 2014, a critical theme and potential tailwind for global capital markets was a recovery in global mergers and acquisitions (M&A) activity. I have heard some suggest that intensive “deal making” is a typical sign of an impending secular peak for risk assets. I did not expect, nor do I expect, that will prove correct in 2014.
A recovery in M&A should be viewed as a long awaited signal that managements and boards of directors are growing comfortable with a recovering global environment after many years of cash hoarding in the wake of the 2008 credit crisis. It is also encouraging that companies unable to achieve organic growth have the confidence and continued favorable cost of capital to acquire growth.
Would motivated buyers be acting if they did not expect continued profit growth? I also expect it is a strong signal, especially in the U.S., that deflation fears are quickly receding. A prevailing deflationary environment suggests oversupply and the absence of pricing power. Clearly not an environment for an increase in M&A as deflation dictates that the price of an acquisition target will only cheapen. Why buy now when you can acquire the same asset cheaper in the future?
Investors should be encouraged by the increase in M&A activity and view it as a continued tailwind for 2014.
Let’s take a mid-year look at the actual numbers.
as of 6/25
as of 6/25/14
as of 6/25/14
|Global||$2.4 trillion||$2.6 trillion||$2.1 trillion
|$998 billion||$1.2 trillion|
|North America||$1.1 trillion||$1.2 trillion||$967 billion
|$407 billion||$541 billion|
- European M&A has increased strongly with a value of $678 billion year to date versus just $324 billion on the same day in 2013.
- Consumer non-cyclical M&A has increased 175% year on year, along with communications increasing 150%.
- The average size of North American deals has increased from $197 million in 2013 to $302 million this year. Global deal size average has also increased from $155 million in 2013 to $267 million.
2014 Merger & Acquisition Summary