Deal making is back on Wall Street – in a big way.
Mergers had been nearly non-existent for nearly six years in the wake of the financial crisis as global economic uncertainty, heightened scrutiny of corporate boards, high unemployment and the housing market bust had put a damper on M&A deals.
But 2013 has begun with a flurry of deal making, with $160 billion worth of merger activity thus far, the most at this point in the year since 2005, according to Dealogic.
And the stellar start to the markets this year – the S&P gained 6.6% in January and the Dow is quickly approaching its all-time high – suggests deal making will heat up in the months ahead.
The latest M&A deals come at a time of historically low financing costs, renewed corporate confidence, and companies flush with stockpiles of cash. In this climate, companies are seeking growth through deals and see them as a way to expand while appeasing anxious shareholders.
"The dam is burst. The forces were too powerful to hold back forever," James B. Lee,
vice chairman of JPMorgan Chase & Co. (NYSE: JPM), told The Wall Street Journal.
M&A Deals Piling Up in 2013
Lee is in the midst of working on the $24.4 billion deal with Michael Dell and private equity firm Silverlake to take Dell Inc. (NYSE: DELL) private, but there are plenty more recent deals in the news, some rewarding shareholders quite nicely:
- Dominating headlines Thursday was Warren Buffett and Brazilian private equity firm 3G Capital's $28 billion takeover of H.J. Heinz Co. (NYSE: HNZ) for $$72.50 a share. Shareholders realized a 20% premium.
- Also announced was the $11 billion US Airways (NYSE: LCC ) merger with American Airlines (AAMRQ), creating the nation's biggest airline.
- A revised deal for Anheuser-Bush InBev NV (NYSE: BUD) over terms of the divestment of some brands to competitor Constellation Brands Inc. (NYSE: STZ) was also inked Thursday, in a contract worth some $4.5 billion.
- Drug wholesaler Cardinal Health Inc. (NYSE: CAH) completed a $2 billion purchase this week of rival AssuraMed.
The deals follow the recent rash of other activity like Liberty Global Inc. (Nasdaq: LBYTA) and Virgin Media Inc.'s (Nasdaq: VMED) $16 billion cable union, and Comcast Corp.'s (Nasdaq: CMCSA) deal to buy the remainder of NBCUniversal from General Electric Co. (NYSE: GE) for $18.1 billion.
Why Deal Making is Contagious
John A. Bick, a partner at the law firm Davis Polk & Wardwell, who advised Heinz on the deal, told The New York Times mega-mergers have a psychological component – mergers beget more mergers, and it's sort of like no one wants to be left out of the party.
"In the same way that success breeds success, deals breed more deals," Bick said.
And while strong markets buoy M&A activity, the reverse is also true.
"Deal-making is going to create a length chain of self-perpetuating deals whose cascading effect will drive equity prices and global markets higher," says Money Morning Capital Wave Strategist Shah Gilani
Even before the recent flurry of deals, Gilani saw the writing on Wall Street's walls.
"Deal-making of all kinds," Gilani wrote earlier this month "is about to get white hot."
He adds that every industry will be on the prowl for a deal in the months ahead to meet goals, add to operations, and stay highly competitive.
Gilani sees no slowdown in the deal making and says it'll likely continue into 2014.
How to Profit from M&A Deals
So how do investors spot the best stocks to buy so they can profit from this frenzy of M&A deals?
The real money makers, the ones that will give investors gains that will far outpace average market returns, are usually only privy to a select group on Wall Street.
As Gilani explains in a new report, the best way to find the most profitable stocks to buy in this environment means to think like the Wall Street dealmakers themselves.
If you do, you can get a bigger chunk of the profits – which in previous deals have outgained the market nearly 40 to 1.
To get a look inside the ins and outs of Wall Street deal making, plus hear about the six profit opportunities stemming from this "white hot" deal trend right now, check out Gilani's new report.
Related Articles and News:
- Money Morning:
Deal Making Is About to Get White Hot - Money Morning:
Find the Best Stocks to Buy Now as M&A Activity Heats Up - Reuters:
Buffett's Heinz deal points to rebounding U.S. M&A business - The Wall Street Journal:
Shopping Spree for Wall Street - The New York Times:
Confidence on Upswing, Mergers Make Comeback
I doubt the DELL deal will go through since it is being challenged by too many institutional investors. If it does, it's going to cost significantly more than the $17 or so per share already on offer.