Powered by investor support and a desire to best rivals in consolidating markets, merger and acquisition activity has been rampant, with global deal volume rising to its highest level in seven years.
Through the first six months of 2014, volumes soared to $1.75 trillion – the strongest showing since 2007 ($2.28 trillion) and up 75% from a year ago. Tallied at more than $1 trillion, the deal load for second quarter 2014 was up exponentially from the $680 million recorded during the first quarter. Analysts say the deal-making bonanza – which includes 38 unsolicited or hostile bids totaling more than $150 billion – could last for several months, thanks to strong stock prices, hefty cash reserves, and inexpensive financing.
“Companies have strategic imperatives to do deals, they have the cash to do deals, and they can borrow additional cash at record-low rates," Frank Aquila, a mergers and acquisitions lawyer at Sullivan & Cromwell LLP, told Reuters. "It really is a bit of a perfect storm when it comes to deal-making."
So far this year in the ad specialty market, Top 40 companies have been active, as mergers and acquisitions in this sector have picked up. Alphabroder (asi/34063) acquired Ash City (asi/37127) at the beginning of the year, S&S Activewear (asi/84358) purchased Eva Tees (asi/52834) late last year, BEL USA made a move into the distributor side after it merged with Branders.com in February, and Prime Line (asi/79530) added on two small industry suppliers in January as well as Points of Light (asi/78825) in April. In all, it has been a busy six months of deal-making in the ad specialty market.
In the overall economy, the merger activity is being driven by money-flush corporations, including Pfizer and Comcast, that have strong balance sheets – a fact that differs from 2007 when private equity deployed inexpensive cash to pile companies with debt, analysts say. Significantly, the acquisitions are paying out for the acquirers: About 70% of announced U.S. acquisitions worth $1 billion or more in the first half of the year were followed by gains in stock prices of the buyers.
“In the early stages of an M&A wave, the returns to acquirers tend to be positive, but as the M&A wave matures, the returns turn negative as people get overconfident," Bob Bruner, dean of the University of Virginia's Darden Graduate School of Business Administration, told Reuters. "It would seem that we are still at the early stage of the wave.”