Where M&A Activity is Healthy and Strong
One of the best ways investors can gauge the strength of the economy is through mergers and acquisitions (or M&A) activity. It tells investors that businesses are growing and that the economy is healthy enough to support large financial commitments.
Historically, increased M&A activity has been associated with the availability of credit, deregulation or other changes in government policy, and innovation stemming from the private sector. Because these business deals are often multi-billion arrangements, mergers and acquisitions tend to make the most sense when stock values are high so companies can finance part or all of the buyout through stock purchases. With the markets near all-time highs and a pro-business administration newly elected to office, it would make sense that M&A activity would be up.
M&A Activity in the Last 12 Months
For 2016, takeover activity registered as the third highest on record – with only 2015 and 2007 being higher. Some of the biggest mergers recently were the mega-deals in the chemicals industry. Dow Chemical and DuPont agreed to a $59 billion merger, China National Chemical Corp acquired Syngenta for $42 billion, and Bayer bought Monsanto for $66 billion.
Tech mergers have been strong as well, especially in the telecommunications industry, while the energy industry has been forced to make deals in order to stave off bankruptcy and combat low oil prices. On a global scale, the United States attracted $387.1 billion in M&A funds for 2016 ahead of the election – the highest on record according to Mergermarket, an M&A monitoring firm.
Other major deals last year were the AT&T/Time Warner deal and the GE/Baker Hughes oil and gas merger.
Mergers to Watch for
As Donald Trump begins to implement his policies, deregulation could return to Wall Street, helping boost M&A activity further for 2017. So far this year, M&A activity looks stronger than ever with January registering a 12.7 percent increase in deals from December.
For 2017 though, there are a few interesting merger possibilities that investors might want to watch out for. One is the video streaming service, Netflix. With its low debt load and high growth prospects, it could attract buyers like Disney or Apple.
Another deal could happen in the retail space with Barnes and Noble getting bought up by online giant, Amazon. While the brick-and-mortar business model hasn’t been working for most retailers, Amazon has recently announced plans to expand into physical locations and Barnes and Noble could meet those demands fairly easily.
Finally, Acadia Pharmaceuticals, a biotech with drug developments for Alzheimer’s and Parkinson’s could be attractive to buyers like Pfizer or Gilead Sciences.
One sector that hasn’t seen much deal-making lately is healthcare. As Trump starts to deregulate markets and address issues like the Affordable Care Act though, there could be a shake up in the industry that investors might be able to take advantage of. Interested investors should watch the industry closely to see how the fallout from political changes will shape the healthcare industry.