Merger Mayhem: Making sense of 2015’s record-breaking M&A

As we all know by now, dealmaking is on an absolute tear as of late. What's behind the record-breaking M&A activity, and will it last?

As we all know by now, dealmaking is on an absolute tear as of late. In May alone, M&A hit $243 billion. It’s an all time monthly record, one that shatters highs not seen since May of the dot-com boom ($213 billion) and May 2007 ($226 billion). Sure, last year offered up a taste with $3.5 trillion in deals globally – the highest since the recession. But this year is looking to be something else with a steady stream of megamergers in the works. So what’s going on, and what does it mean?

The story so far

Clearly, the U.S. is leading the pack.

As of the end of May, M&A activity in the states has accounted for 4,654 deals worth $875 billion. Health, technology and telecommunications accounted for nearly 60% of the deals.

Standouts include Verizon’s mid-May announcement to acquire AOL for $4.4 billion, Charter Communications $56 billion plan to acquire Time Warner, Heinz $45 billion deal for rival Kraft, Blue Cross owner Anthem’s potential $47 billion offer for health insurance rival Cigna, and the equally speculative UnitedHealth’s $40 billion bid for Aetna.

Unless we’re forgetting something… oh that’s right, Royal Dutch Shell’s $70 billion (!!!) deal to takeover natural gas firm BG Group.

Needless to say, love (of the boardroom variety) is in the air.

“CEOs are looking at deals to strategically strengthen and protect their positions in this increasingly competitive marketplace,” said Martyn Curragh, principal and PricewaterhouseCooper’s U.S. Deals leader, in a note breaking down the flurry of activity.

But is it surprising? Not really. Anyone familiar with the cyclical nature of the markets could probably have predicted the resurgence of M&A activity as the fallout from the financial collapse faded.

“Corporate boards are deploying record amounts of cash to increase returns, and high stock prices are emboldening buyers and sellers,” added Curragh. “The strong U.S. economy and rising confidence signals a strong finish to 2015, making it another record year for M&A value since 2007 and the doldrums of the financial crisis.”

According to Bloomberg, “with confidence in the c-suite comes confidence in the dealroom” was a bit of a mantra on Wall Street, a little something to help everyone sleep a little better at night.

That confidence – and the M&A activity that comes with it – seems to have come to fruition.

The outlook from the c-suite

While the American economy’s rebound seems to have jump started the dealmaking engine, it doesn’t look like it’ll be long before the mania spends internationally.

In a recent survey by PricewaterhouseCoopers, 51% of global CEOs say they plan to complete an acquisition in 2015.

“We all live in a world of partnerships today, and those partnerships are very different from one to another – some of our partnerships have been decades in length,” Arne M. Sorenson, President and Chief Executive Officer of Marriott International, Inc told PWC. “The attributes of the strongest partnerships are ones where we are both mindful that each needs to be successful financially, but also both mindful that they are long-term relationships.”

It’s also about staying on top of the competition, as technology and tech companies continue to bleed (and breed) into other industries.

56% of CEOs think it likely companies will increasingly compete in new sectors over the next three years, with 15 per cent saying tech and pharma/healthcare are the big targets to enter.

“More than ever, companies are seeking to extend their capabilities into adjacent or entirely different industries. Many organizations are looking for opportunities to stimulate innovation and gain access to new technologies as much as they are looking for a conduit to new customers and geographies,” added Curragh. “As the boundaries across industries continue to blur, joint ventures and alliances are also becoming more prevalent.”

The take-away? Don’t expect the merger mayhem to end anytime soon.

Andrew Seale

Andrew Seale is a Toronto-based business writer who contributes frequently to Yahoo Canada Finance, The Globe and Mail's Report on Business and The Toronto Star.