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”

Bloomberg Businessweek (North America) - - Contents -

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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