Analysts note that deal-making often accelerates close to the top of a cycle. So it could bode ill that January marked the strongest start to a year for global mergers and acquisitions (M&A) since the peak of the dotcom boom in 2000, especially in light of the nasty market wobble over the past few days. In total, $367bn worth of deals were agreed, notably French drugmaker Sanofi’s $11.4bn purchase of biotech company Bioverativ.
There were 11 transactions worth more than $5bn. In the UK, the value of M&A jumped to £421bn, up 33% on the previous year. Meanwhile, 2017 was the fourth year in a row that worldwide M&A exceeded $3trn – an unprecedented streak.
M&A always flourishes when animal spirits are high. Until last week, the S&P 500 spent 202 consecutive days within 3% of an all-time high, s Michael Batnick on Ritholtz.com – a new record. Market confidence in the economic backdrop has risen. And US tax reform appears to have given the urge to merge added impetus, with many of the deals announced coming from across the Atlantic.
Companies can expect a corporation tax cut from 35% to 21%, and will be allowed to bring overseas earnings back, increasing the war chest for acquisitions. Still, given the nervous start to February, January’s figure may not be eclipsed for some time.