Deal makers clinch US$2.3t of M&As in H1 on mega-mergers
Print Edition
DEAL makers from New York to London had a busy first half of the year, and mega-mergers drove the frenzy.
Companies around the world announced mergers and acquisitions worth US$2.3 trillion, according to figures from data provider Dealogic, the second-best half-year total on record and the highest amount since 2007, when US$2.6 trillion of deals were announced.
The tie-ups included 31 deals worth US$10 billion or more, accounting for 39 percent of the total. That’s the largest share since the second-half of 1999, at the peak of the dot-com bubble.
The rush to merge has been driven by low borrowing costs and steady but unspectacular growth in the US economy, which have sent CEOs hunting for new ways to expand sales and boost earnings. Companies from ketchup maker Heinz to oil producer Shell have joined the M&A throng this year.
“The mega-mergers, the big deals, have come back into favor,” said Neil Dhar, US capital markets leader at PricewaterhouseCoopers.
Of course, what’s good for Wall Street isn’t necessarily good for Main Street.
Mergers typically push up stock prices — at least for the company being acquired — and generate healthy fees for the investment banks and law firms that advise on the deals. But they can also mean layoffs and less consumer choice. And there is no guarantee that the deals will work out for investors in the long run.
None of that is slowing the pace of mammoth acquisitions.
Shell’s US$82-billion purchase of gas company BG Group is the biggest deal announced so far this year. The combination will boost Shell’s oil and gas reserves by 25 percent and give it a bigger presence in the fast-growing liquefied natural gas market.
In the US, the biggest deal announced is Charter Communications’ bid for Time Warner Cable, part of a broader consolidation among cable and media companies as technology and costs shake up the industries. The deal is valued at US$80 billion, including debt.
The burst of deals has come against a backdrop of ultra-low interest rates that have reduced the cost of financing transactions for acquirers. The US Federal Reserve has kept its benchmark interest rate close to zero for more than six years, making it easier for corporations to borrow cheaply in the bond market.
Even if the Fed increases rates later this year, as many economists expect, the enthusiasm for deals will remain, says Bill Wolfe, a senior vice president at Moody’s Investors Service.
“Even with an increase, rates are still going to be relatively low,” Wolfe said.
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