2015 was a record year for mergers and acquisitions, and the action generated a lot of media attention. But for some reason, the plethora of mergers that have taken place across many sectors in 2016 have gone unnoticed. From airlines to media, semiconductors, and chemicals – this year has been one of the biggest in size and scope. Some companies are being bought at record premium and often for straight cash. Additionally, international companies are eyeing US companies (and this trend far from over).
The question is: Why are so many mergers happening with the stock market at/near all time highs for most of the year? If the market is “expensive” (based on several metrics), why would anyone buy right now – and possibly overpay?
Mergers are a positive sign
The short answer: Mergers and acquisitions are a sign of economic health. And, the market is often excited about companies teaming up (both companies’ stocks rise on news of a deal).
Look at the US economy, and you’ll see there is some daylight ahead. Oh, we can talk endlessly about how 2% growth is the new normal, but the fact is, firms are lean, hold tons of cash, and are often targets for diversification – see Dreamworks, Alaska Air, Medivation, LinkedIn and St. Jude Medical. Just last week, Qualcomm announced interest in paying a big premium for NXP Semiconductor, and both stocks soared on the potential news.
Naturally, we have seen our fair share of busted mergers, including Allergan/Pfizer and Halliburton/Baker Hughes. Monsanto/Bayer could also fail due to regulatory issues. Yet, given the insatiable appetite for companies to grow and find value, we could certainly see this trend continue into the end of the year as we perhaps break new records – and quite possibly kick-start 2017 with a bang.
Copyright: macgyverhh / 123RF Stock Photo
