Mergers and acquisitions madness may be about to stop

It has been a year when superlatives have been wheeled out in the mergers and acquisitions world. Shell’s takeover of BG, announced in April, was, at £47bn, the largest deal in a decade.

Anheuser-Busch InBev’s public – but so far unrequited – courtship of brewing rival SABMiller would be the largest-ever tie-up in the brewing business.

Deal-makers – already the smartest dressed and smoothest talkers in the City – have already announced more activity this year than they did for the whole of 2014. Indeed, they have never announced so valuable a string of mergers by this point in any year. According to Thomson Reuters, the will-they-won’t-they brewing tussle brings the total size of deals announced so far to $3.38tn (£2.2tn), a 35% increase compared with a year ago and the strongest year-to-date total for worldwide M&A since records began in 1980.

Why this flurry of mergers? Interest rates are low, so it is cheap to borrow to finance deals. The environment for growth in the business world is also tough, so buying a rival from which costs can be axed is an easier way to generate returns.

Can it go on? The big investment banks in the US, Goldman Sachs and its rivals, start to report their third-quarter results this week. There may well be updates on their “pipeline”; that is, the number of companies they know are thinking about tie-ups but yet to go public with their intentions. They may be able to say that it looks strong for the next quarter or so (and it is a brave corporate financier who tells his bosses that his pipeline is running dry).

But in reality the M&A race may soon start to lose its legs. An interest-rate rise anticipated on both sides of the Atlantic will start to make it harder to finance deals. This has also been a year in which deals have failed to materialise: RSA is still on the shelf after Zurich Insurance failed to table a formal offer and, to be clear, AB InBev has not yet managed to catch SABMiller. For now, though, the corporate financiers look to be on track for bumper Christmas-time bonuses.

Powered by article was written by , for on Sunday 11th October 2015 11.01 Europe/ © Guardian News and Media Limited 2010


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