Are we in the next ‘Merger Wave’?

Andrew Sachais Contributor
Font Size:

For the past several years companies have been focused on maintaining their financial forts, but with productivity reaching its tipping point, M&A looks to be back on the table.

When the economy is fragile, America’s biggest corporations tend to focus on surviving and avoiding big risks. During the recent downturn, companies managed to build up mountains of cash on their balance sheets, thanks to their surprising profitability.

“Companies traded on the S&P 500 are sitting on roughly $1 trillion in cash,” reports Yahoo Finance.

Cash piles, combined with an environment of slower revenue growth, cheap financing, and a stabilizing economy, has led to what looks like the beginning of a new, albeit still too early to tell, merger boom.

Last week saw the announcement of two huge deals: The American Airlines-US Airways $11 billion merger and Warren Buffett’s purchase of Heinz for roughly $283 billion,  following closely on the heels of Dell’s announcement that it is taking itself private, as well Liberty Global’s purchase of Virgin Media.

“Data by Thomson Reuters shows merger and acquisition activity is up two times as much so far this year compared to the same period last year at about $159 billion.” claims Yahoo.

The frustration of the large cash piles has elicited investors to demand they be put to good use or returned to shareholders. Last week David Einhorn of Greenlight Capital sued Apple in an effort to have the iPhone maker share more of its $137 billion in cash with investors.

“Though many investors have viewed Apple’s cash holdings as excessive and wanted to see more of it returned to shareholders, that view may not be universally held: other investors may prefer to see the cash (or at least a large portion of it) deployed for investments and acquisitions,” ISS, which issues recommendations on how shareholders should vote on proxy proposal, said in a release.