M&A

Mergers Pace at Six-year High

At the current pace, deals this year could top $1 trillion, says one observer; ''It's a sign of confidence, a sign of good times.''
Stephen TaubMay 10, 2006

Boom times are back again on Wall Street, at least when it comes to mergers and acquisitions.

So far this year (through Monday), 3,223 deals worth $479.6 billion have been announced, the fastest pace since the record-setting year of 2000, according to USA Today, which cited Thomson Financial.

On Monday alone, two of the six largest deals of the year were disclosed. Wachovia announced plans to buy Golden West Financial for $25.5 billion in stock and cash, while Thermo Electron struck a deal to buy Fisher Scientific for $10.2 billion in stock.

The reasons behind the boom: Companies are loaded with cash after 15 straight quarters of double-digit growth in profits, while share prices are way up as the Dow Industrials march toward a new record high.

Some of the acquisitive interest is coming from private equity firms, which have built up huge caches of cash and commitments. Indeed, Thomas H. Lee Partners plans to raise another $9 billion for its sixth buyout fund, 20 percent more than it originally sought about a year ago, reported Bloomberg, citing a person familiar with the matter.

At the current pace, deals this year could top $1 trillion, senior Thomson researcher Richard Peterson told USA Today. “It’s a sign of confidence, a sign of good times,” he said.

“It is cheaper and quicker to buy, say, a sales force, a complementary product line, or a product facility than it is to build one,” Roy Behren, analyst at Westchester Capital Management, told the paper. He added that compared with the late ’90s, mergers today are more likely to be strategic, as companies buy similar businesses to grow in size and geographic coverage, so they are in better position to compete.

The upshot? “M&As beget more M&As,” John Orrico, part of a team that manages the Arbitrage fund, told the paper.

4 Powerful Communication Strategies for Your Next Board Meeting