Bloomberg Businessweek (North America)

Cresting deal mania usually points to a slowdown. Maybe not this time

▶ A surge inm& Acanbe a signthe economyis sputtering ▶ “I’mnot sure the samelesson­s apply this timearound”

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On Nov. 23, when drugmaking giants

Pfififizer and Allergan agreed to combine, in a deal worth $183.7 billion, 2015 gained the distinctio­n of becoming a record year for mergers and acquisitio­ns. The Big Pharma deal, by far the year’s largest, pushed 2015 past the $3.4 trillionma­rk in global M& A value set in 2007, just before the financial crisis. That beat the previous record, set in 2000, which also came right before the economy fell into recession, pulled down by the dot-com collapse.

A flurry of corporate dealmaking is “a classic late-cycle developmen­t,” says David Rosenberg, chief economist at Gluskin Sheffff, a Torontomon­ey manager. “When companies embark on peakm& A activity, it ismore often than not coinciding with a peak in the stock market and, dare I say, a peak in the business cycle. Companies are telling us they can no longer grow organicall­y.” The dollar value of deals in 2015 through Dec. 21 was $3.8 trillion.

During six and a half years of expansion, the U. S. economy has averaged only 2.2 percent annual growth. With interest rates near zero and corporate balance sheets flush with cash, the easiest way for executives to boost share prices has often been to increase dividends and buy back stock.

That strategy worked to a degree. Even with lackluster economic growth, the stock market has almost tripled since its March 2009 low. Yet corporate profifits peaked in the summer of 2014. With consumer demand still weak around the world, sales growth remains elusive. Rather than trying to generate revenue themselves, companies have been buying growth instead, acquiring rivals at an unpreceden­ted pace.

The near- term impact of a merger boom tends to be negative for the economy, Rosenberg says. The watchwords of corporate M& A— cost- cutting and synergies—usually translate

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