How Will the High Level of M&A Activity Impact Investors?

July 31, 2015

For this week’s chart, we take a look at quarterly M&A deals, measured by volume. Typically, summer is a quiet period for M&A activity; however, we have seen the volume of deals for the month of July already surpass $475 billion dollars which would put it on pace to surpass the previous quarter high that was last seen in 2007, just before the start of the great recession. There are a variety of explanations for the increased M&A activity: pressure from activist investors, hostile takeovers, and companies with large cash positions beginning to deploy their savings as they better position themselves for future growth. Whether it is a close competitor or a company that compliments current operations, we have seen a great increase in deals over the previous two quarters.

One of the concerns with the elevated M&A activity is that companies are stretching for valuations when acquiring other firms, and given the elevated prices they are paying, it will be difficult to realize a profitable return on the size of their investments. Comparing deal counts to their respective volumes, we have seen less deals over the past two years, but higher dollar volumes than during the 2006–2007 boom years for M&A. The next two months bear watching to see if the furious M&A activity continues, or if the pace begins to abate. Of course, the real result of this activity will not be known for years, but the success – or lack thereof – of these mergers and acquisitions will no doubt manifest itself in capital market returns.