Stocks may be down but the party in corporate mergers isn’t ready to end—and still may hit record levels this year, USA Today reported.
Activity during the first nine months suggests corporate mergers and acquisitions are on track to reach an estimated $3.83 trillion by the end of the year, according to research firm Mergermarket. That would be 4.5% higher than the previous peak of of $3.66 trillion reached in 2007, before the financial crisis ended the party, Mergermarket said in a new report.
Meanwhile, there’s no sign that recent stock volatility or fears of a slowdown in China will dampen the good times — at least not yet, experts say.
“M&A is typically a long-term strategic decision that is not affected by short-term market volatility,” says Peter Tague, co-head of global M&A at Citigroup. “Despite the instability of the last month, M&A activity remains strong and on pace to match or even exceed 2007.”
Fueling the M&A boom this year has been low historically interest rates, which makes borrowing cheaper. Also helping matters has been the increased activity in “mega-deals,” or mergers valued over $10 billion. Such mega-deals accounted for 38.0% of global M&A this year, Mergermarket said.
Behemoth deals so far include Royal Dutch Shell’s $70 billion bid for UK oil and gas producer BG Group in April, Charter Communications’ offer to buy fellow cable giant Time Warner Cable for $55 billion in May and Heinz’s plan to merge with Kraft Foods Group in a deal valued at $46 billion in March.
Meanwhile, other mega-deals could still emerge, including expectations that Anheuser-Busch InBev will make an offer for SABMiller. A marriage between the companies would rank among the top three largest deals ever and could therefore “tip the scales,” says Kirsty Wilson, global research editor with Mergermarket.
Wall Street is coming off its worst quarter in four years, so it’s probably not much of a surprise that the IPO market is too. David Craig with America’s Markets.
That AB InBev, SABMiller merger, which Mergermarket estimates could be worth a massive $102.2 billion, would secure 2015 as a record year for deal making, Wilson says. It could even push activity up 10% over 2007, depending on what other deals are announced over the next quarter, she says.
Of course, the party won’t last forever and deal-making could slow when the Federal Reserve starts raising interest rates, experts say. Continued market volatility could also dampen the party, warns Citi’s Tague.
“If we see increasing and sustained market disruption, M&A will clearly feel an impact,” Tague says.
Meanwhile, US banks have been benefiting greatly from the boom, with banks such as JPMorgan Chase and Goldman Sachs topping the charts of global deal-makers. JPMorgan, which Mergermarket ranked as the No. 2 global dealmaker by volume, reports third-quarter earnings on October 13th. Goldman, which Mergermarket ranked No. 1, is expected to report earnings on October 15th.
