2014 was a banner year for corporate mergers. Find out why that is, and why there will likely be more of the same in the immediate future.
In 2014 the world saw a whopping $3 trillion in corporate mergers, and in the United States, a volume of deals that hasn’t been equalled since 2007 – pre-recession.
So, what’s behind all the action, and what do such trends mean? Below are three basic things you need to know about the boom in global mergers.
1.) A smattering of pricey acquisitions are responsible for beefing up the global merger total
The overall volume of deals has continued to trends upwards in recent years. With nearly 40,000 different mergers and acquisitions totalling over $3 trillion in 2014, the trend marks the highest total since 2007 – all thanks to a slew of big deals.
Among the most noteworthy deals were AT&T’s bid to purchase DirecTV for $67 billion, and Activis paying $66 billion for Allergan (the company who makes Botox).
These, plus other major deals like Facebook’s acquisition of WhatsApp, have contributed to skyrocketing totals up 47 percent from 2013 to 2014.
2.) Cheap debt and extra cash have contributed to the trend in global mergers
The megadeals in the United States stem from a few different factors: one major facet being the Fed’s commitment to keeping interest rates low, making borrowing easy and inexpensive. Another is the factor is that US stock prices have been faring well.
With an abundance of cash ($1.5 trillion to be exact) companies are now looking to sustain growth through acquiring other businesses – a compounding trend, which has forced other companies to follow suit in an effort to stay competitive.
Additionally, mergers can lead to valuable cost-saving for companies looking to stay afloat in a lackluster economy.
3.) The trend in mergers is expected to continue
According to an interview with the Wall Street Journal, Joseph Perella, a former Wall Street banker and co-founder of merger advisory boutique Perella and Weinberg Partners, the trend is expected to continue for another six to 12 months.
In 2015 the deals have indeed continued, with the biggest energy deal in a decade between Royal Dutch Shell and BP totalling over $70 billion.
4.) Not all mergers are set in stone
As evidenced by a failed bid by Comcast to purchase its next largest competitor Time Warner, mergers aren’t always destined for success.
The $45 billion deal which was poised to merge nearly 30 percent of the cable TV market and 50 percent of the broadband market, was put to rest after strong evidence that both the FCC and the Department of Justice would recommend measures that might impede the deal altogether.