A record year for global M&A

This year will go down as the best on record for global mergers and acquisitions (M&A). There have been $4.6trn-worth of deals, with US companies leading the charge – they accounted for an unprecedented $2.3trn. Asia had a record year too. The year also saw the most mega-deals, defined as mergers worth over $5bn, in history: 137. Eye-catching examples included Pfizer’s $160bn pharma tie-up with Allergan, and the $106bn brewing merger of Anheuser-Busch InBev and SABMiller.

What the commentators said

M&A frenzies are classic signs of market tops, as MoneyWeek has often pointed out; 2007 and 2000 were previous record M&A years. Still, as with the stockmarket rally itself, which has central-bank money-printing or ultra-low interest-rates providing a strong tailwind, there may still be a bit of mileage in it.

Financing is cheaper than in 2007, noted the FT, with the benchmark US ten-year Treasury yield just over 2% today, less than half its 2007 level. American firms also have an extra trillion of cash on their balance sheets. A greater proportion of deals than last time are being financed with the buyers’ equity instead of debt, suggesting less exuberance than in 2007.

However long it goes on, however, it seems likely to end the same way. The mega-deals should be an especially stark reminder that acquirers tend to overpay and destroy value, as Bloomberg.com’s Gadfly blog pointed out. The only people who do well out of M&A are bankers. Banks have generated over $26bn in fees from the global spree, the most since 2008. As Warren Buffett jokes, M&A has “prompted the saying that fees too often lead to transactions rather than transactions leading to fees”.

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