“After five years in which the investment banks’ milch cow has been running dry”, mergers and acquisitions (M&A) are making a comeback, says Fidelity’s Tom Stevenson in The Sunday Telegraph. This year, $370bn of deals have been announced worldwide, the fastest start to a year since 2008.
Almost half this tally is accounted for by America, where last week’s $28bn purchase of Heinz followed the $24bn buyout of Dell and the $16bn takeover of Virgin Media by Liberty Global.
Chalk the trend up to the “oceans of liquidity loosed by the world’s central banks”, says Randall W Forsyth in Barron’s. These are reflected in rock-bottom interest rates, spurring borrowing for takeovers, and the massive cash balances “sitting idly” on corporate balance sheets. The gradual return of confidence is also key.
With worries fading over the financial situation in Europe, and the political one in America, the odds of a nasty economic jolt “suddenly turning a deal into a loser seem diminished”, says Justin Lahart on WSJ.com. “The foundations of a significant increase” in M&A might finally be in place, says Stevenson. That implies a further boost to markets as many stocks are rerated to reflect the possibility of a merger.
With animal spirits returning, deal activity should keep improving, says John Authers in the FT. But a macroeconomic accident, while less likely than before, could shake confidence and damage the still-fragile global recovery. So the M&A revival could yet be snuffed out.