Merger mania driving mega deals

Shell’s $82-billion purchase of BG shows companies are still willing to ‘go big’

NEW YORK— Deal makers from New York to London had a busy first half of the year, and megamergers drove the frenzy.

Companies around the world announced mergers and acquisitions worth $2.3 trillion (U.S.), according to figures from data provider Dealogic, the second-best half-year total on record and the highest amount since 2007, when $2.6 trillion of deals were announced.

The tie-ups included 31deals worth $10 billion or more, accounting for 39 per cent of the total. That’s the largest share since the second half of 1999, at the peak of the dot-com bubble.

The second half of the year is also off to a hot start, with a $37-billion deal by Aetna Inc. to buy fellow insurer Humana Inc. announced early Friday.

The rush to merge has been driven by low borrowing costs and steady but unspectacular growth in the U.S. economy, which have sent CEOs hunting for new ways to expand sales and boost earnings. Companies from ketchup maker Heinz to oil producer Shell have joined the M&A throng this year.

“The megamergers, the big deals, have come back into favour,” says Neil Dhar, U.S. capital markets leader at professional services firm PwC.

Mergers typically push up stock prices — at least for the company being acquired — and generate healthy fees for the investment banks and law firms that advise on the deals. But they can also mean layoffs and less consumer choice. And there is no guarantee that the deals will work out for investors in the long run.

None of that is slowing the pace of mammoth acquisitions.

Shell’s $82-billion purchase of gas company BG Group is the biggest deal announced so far this year. The combination will boost Shell’s oil and gas reserves by 25 per cent and give it a bigger presence in the fast-growing liquefied natural gas market.