Thursday, October 1, 2009

M&A Activity Heating Up

If memory serves, the first big move was Disney buying Marvel. Aside from the obvious humor of Bambi now owning the Hulk, this deal makes a great deal of sense. Disney is a teen marketing powerhouse. Marvel now gives them a bigger reach in that market. Then there was Kraft going after Schepees - another decent move. We've started to see some in the drugs industry, and now we've learned of another merger this time in the tech field:

Cisco Systems on Thursday said it struck a $3 billion deal to buy Norway's Tandberg to bolster its position in video conferencing, though there's doubt in the market that the deal will be completed on these terms.

The bottom line is M&A activity has been increasing. This is a good sign for several reasons. The first is it indicates that companies are feeling a bit more secure about the future. When companies are nervous about the future they hoard cash. In addition, mergers take time to close and consolidate. This is better done when the economy is stagnant or growing rather than contracting.

Today the WSJ has an article titled M&A is Back! Well, Sort Of where they note that the number of deals is declining and is lower from year ago levels. However, they also note the following:

But unlike in recent quarters, deal makers seem more willing to declare that M&A activity is back. The standard banker line that "deals are in the pipeline" is becoming more common.

"I think we hit a bottom over the summer. Since about the third week of August, we noticed a pickup in activity," said Bruce Evans, head of M&A for the Americas at Deutsche Bank AG. "A lot is driven by companies having a view of the future....It is no longer just about fixing their balance sheets."

Kraft Foods Inc.'s proposal to acquire Cadbury PLC was the largest announced deal of the period, though Cadbury rejected the $16.66 billion bid and it is likely to be weeks before Kraft submits a formal offer. Other big deals included Abbott Laboratories' $7.05 billion purchase of a Belgian pharmaceutical business, Dell Inc.'s $3.88 billion acquisition of Perot Systems Corp. and Walt Disney Co.'s $3.92 billion deal to buy Marvel Entertainment Inc.

"With general sentiment improving, together with equity and financing markets, companies are pushing forward with deals they've been thinking about all year but were reluctant to proceed with until now," said Adrian Mee, head of European M&A at Nomura Holdings Inc. in London.

I think this is more of a perception/sentiment issue. There have simply been some larger far more public deals over the last few months compared to a year ago. And that is a good thing.