Is the economy on the cusp of a buyout boom?
After years of hibernation, the mergers market is seeing a burst of activity
With a spate of blockbuster mergers and acquisitions in recent days, analysts far and wide are proclaiming the dawn of a new age of mega-buyouts. On Thursday alone, $40 billion worth of deals were announced, including the purchase of Heinz by Berkshire Hathaway and 3G, and the merger of American Airlines and US Airways. That followed a $24 billion private takeover of Dell, a $16 billion acquisition of British cable business Virgin Media by Liberty Global, and an agreement for Comcast to take sole ownership of NBCUniversal in an $18 billion deal with General Electric. Overall, $160 billion worth of M&A transactions have taken place since January, the hottest start to a year since 2005.
The burst of activity recalled the heady days that directly preceded the financial crisis, when private equity groups leveraged vast sums of borrowed money to buy companies left and right. Since then, however, the M&A market has been largely moribund, with cautious companies laying low and banks withdrawing their credit lines. Are we now headed toward a buyout boom?
Well, after years of shoring up their finances and cutting costs, it appears cash-rich companies are willing to take more risks. And we should credit an improving climate for corporations, according to Peter Lattman at The New York Times:
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Furthermore, banks knee-capped by the crisis have recovered, and are opening up spigots of credit. As Neil Irwin at The Washington Post explains:
And a lot of people on Wall Street are really excited, none more so than James B. Lee, a vice chairman at JPMorgan Chase who has a talent for coming up with new analogies for every newspaper he talks to. "Since the crisis, one by one, the stars came into alignment," Lee told The Times. "The dam is burst," Lee told The Wall Street Journal. "The Goldilocks era of post-crisis M&A has never been an if, but a when," Lee told Bloomberg. "CEOs are declaring that day has come."
Of course, a frenzy of M&A activity is not always a positive development for the economy. Some of the blockbusters deals in the pre-crisis era went sour for investors, not to mention in the 1990s tech boom. For now, analysts say Wall Street has learned its lesson, say Francesco Guerrera and Dennis K. Berman at the Journal:
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Ryu Spaeth is deputy editor at TheWeek.com. Follow him on Twitter.
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