M&A Reaches Record Levels: Should You Capitalize on the Current Market’s Opportunities?

The preliminary agreement between Anheuser-Busch InBev and SABMiller on a $104-billion merger came just a day after Dell said it would buy EMC for $67 billion in the biggest-ever tech-industry takeover.

Those deals helped put 2015 on pace for a record $400 billion in mergers worldwide, which would surpass 2007, the last year of hot activity before the global financial collapse and Great Recession froze everything.

“The urge to merge is still greater than fears about the global economy.”

Even before either of those megadeals, the global M&A market was on pace to hit the highest levels on record, with $3.2 trillion worth of deals through mid-September, up 29% from the year-earlier period, according to Dealogic. And a recent report by PricewaterhouseCoopers said that 54% of U.S. CEOs intended to consummate an acquisition this year.

“The urge to merge is still greater than fears about the global economy,” a Fortune writer observed. And the current dealmaking activity “has pushed the price tag for acquisitions up as well.”

The food and beverage industry has been the M&A leader to date, with $127.5 billion in deals in that sector this year, excluding the beer companies merger, Dealogic said, up 32% from 2014.

Across sectors, trends fueling the current merger fever include the fact that some Fortune 500 companies, as well as venture capitalists, have been sitting on record amounts of cash for a few years—a number that has been rumored to equal $2 trillion—while companies seek the right places to deploy all their capital.

“There are oceans of cash” available in the CPG industry among others, Tom Pirko, president of Bevmark Consulting, told CEO Briefing. “It has to be spent on something, and money flows to the companies that get bigger.”

In addition, borrowing rates remain extremely low in advance of an expected Fed bump-up in interest rates as soon as December, and CEOs are trying to beat the expected increase; a stronger economy is still expected to emerge in 2016, and low valuations of many companies still haven’t caught up to the recovery.

“The current trend has the increase in M&A activity greatly outpacing cap-ex activity,” noted a recent analysis by Bilzin Sumberg Baena Price & Axelrod, a commercial law firm. “Simply put, CEOs are betting that acquiring companies is a more efficient and effective use of company resources than growing the company organically through reinvestment in capital improvements.”

Dale Buss

Dale Buss is a long-time contributor to Chief Executive, Forbes, The Wall Street Journal and other business publications. He lives in Michigan.

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