“Companies are chasing each other…like hormone-addled teenagers,” says Jeffrey Goldfarb on breakingviews.com. Merger and acquisition (M&A) activity is very nearly back to 2007’s record levels. Globally, there have been almost $2trn worth of deals so far this year, a 36% jump on a year ago. In the US, overall deal activity has hit $841bn, also an eight-year high. And firms are “putting on a nearly unprecedented show of bravado”.
Hostile (unsolicited) bids have made up 12% of all deals this year, the highest proportion since 1999’s record. Last weekend, more than $108bn of potential deals were rejected in the US, notably healthcare group Cigna’s rejection of a $54bn bid from larger rival Anthem.
Industries are rapidly consolidating, and “nobody wants to be left alone”, says Morgan Stanley’s Jim Head in the Financial Times. And failing to carry off a hostile bid has lost its stigma. With less risk of a decline in the stock in the event of a failure, firms are more inclined to risk it, adds Greg Lemkau of Goldman Sachs.
An M&A upswing always accompanies buoyant economies and stockmarkets. Companies that have rebuilt cash piles become more confident and try to bulk up by merging with or buying rivals. But this time round, record-low interest rates have been a central ingredient, encouraging firms to borrow in order to buy peers. And firms feel they’d better get on with it. With the Fed set to move soon, the low-rate environment, says Bank of America Merrill Lynch’s Simon Mackenzie Smith, “is coming to an end”.