The U.S. is experiencing its biggest M&A boom since the Financial Crisis. This Great Graphic was posted on CNN by Jesse Solomon. It shows the dollar value of USA mergers and acquisitions announced from the start of this year through mid-June and the annual figures for the earlier years.
There are several motivations behind the M&A wave. Many observers will cite the large cash stockpiles, but this may be a bit misleading. The sizable cash holdings are highly concentrated. Also, it is not clear that a disproportionate amount of the deals are for cash. With equity prices at elevated levels, there may be an incentive to use stock.
Horizontal acquisitions may be a form of industry rationalization in the sense of getting rid of excess capacity. Vertical acquisitions may be a way to secure supply lines or distribution channels. Some acquisitions may be a means of diversification into new or complimentary product lines.
M&A activity, like share buy backs, may also reduce the number of shares outstanding, which all else being equal, support prices. At the same time, given the equity market rally—which may be a side effect of easy monetary policy as opposed to robust competitiveness, profitability, and earnings momentum of corporations—acquirers risk paying too much. Later they may have to mark down the "goodwill". Lastly, often times businesses exaggerate the cost savings and profitability of the acquisition and later unwind it.
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