The Character of Mergers and Acquisitions in the United States
Mergers and acquisitions in the United States are a fundamental component of business tactics and growth strategy. This is not a new phenomenon. There were somewhere in the neighborhood of 60,000 M&A transactions valued over $5 million in the United States from 1990 to 1999 alone, according to the U.S. Census Bureau. Of course, from the peak of 2007 through the end of 2009, M&A transactions dropped by one-third in number and 40% in both volume and pricing. Nonetheless, 2010 has seen headlines flush with news about hostile takeovers and pioneering attempts at mergers to overcome slow profits and tough competition from abroad.
With the U.S. economy continuing to struggle to come out of its current recession, calls for private (and public) reinvestment can be heard near and far, leading some to suggest that any firm that can afford to should grab up any possible acquisitions that would turn profitable once domestic demand rebounds. At the same time, with foreign sectors, especially primary commodity exporters in developing markets, flourishing and posting healthy or even exceptional growth and profits for the past few quarters, companies in parallel sectors in the United States may see those foreign success stories as just the right targets for acquisitions to stimulate domestic-profits growth.
Big name companies in the United States have always made headlines for their attempts to grab fresh young startups or corner domestic markets by merging with competitors, and current record low interest rates in many developed economies should spur more of the same in 2010. Such transactions are particularly appealing to companies in the US when compared to reinvesting for organic growth because lagging domestic demand remains at the root of the United State’s difficulties in pulling all the way out of its recession. Firms that can’t find new ways to expand their customer base through traditional channels will look to do so through buyouts. To wit, as of October, more than $1.5 trillion in transactions had been reported – still behind 2007 levels but close to the tepid recovery that experts predicted, according to Bloomberg.
This means that the window to get the best deals may be closing, as the United States’ government and Federal Reserve Bank have shown that they possess a strong commitment to use all the tools available to them, if not necessarily the magic-wand solution, to push forward sustainable economic recovery. Once that has begun in earnest, the high value deals will dry up as confidence and momentum bring prices back into sync with accurate market valuations.
Lastly, as global competition, primarily from China at least at first, continues to escalate, it is reasonable to expect that the number and value of mergers and acquisitions in the United States will continue on this slow climb, but that the next few years will see a diversification of the countries where takeover and merger deals originate.
John Brown is a retired financial advisor specializing in M&A deals. If you would like to learn more about merger & acquisitions in specialized niches visit Valence Group.
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