M & A mania revisited (spring 2006 edition)
A recent article in the Economist ("Once more unto the breach, dear clients, once more", 4/6/06) notes once again that the mergers and acquisitions business is booming, thanks to lots of idle capital and inexpensive borrowing. That's old news, but the article does have a few insights worth reading.
- Worldwide, the value of M&A averaged $10 billion a day in the first quarter of 2006, "the highest for six years (in other words, since the height of the dotcom frenzy)."
- European mergers are for the first time bigger than American ones, as cross-border barriers in the EU come down. After all, the US market in at least some sectors is already quite consolidated.
- Unlike the merger boom of five years ago, two-thirds of current deals are financed cash rather than stock.
- Takeover premiums are modest compared to those of five years ago, averaging around 20% over current stock price, as opposed to 35-40% previously.
- Many large companies are perceived as having too little debt, so they are being encouraged by analysts to borrow and buy.
- Unlike in the past, the stock markets have been generally supportive of M&As, when "deals look as if they will create industrial powerhouses, cost synergies or pricing power."
On a lighter note, a sidebar notes that General Electric, termed a "serial acquirer," has been dropping the "Electric" part of its name more and more, just presenting itself as "GE." The sidebar, noting the variety of recent acquisitions, says the company may be better termed "General Eclectic."
5:41:51 PM 
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