According to numerous sources ranging from the New York Times and Reuters to Fortune magazine, one clear sign of renewed economic health in this country is the recent boom in mergers and acquisitions. Even the perpetually gloomy takeover lawyer, Martin Lipton, who once declared the virtual demise of M&A activity, recently announced that, we are in a burgeoning mergers and acquisitions boom.
It will surprise many to learn that December 2004, was the busiest month in M&A history, totaling $283.7 billion in activity and beating the record set in 1999 during the height of the dot-com bubble. Sprint agreed to buy Nextel for $35 billion; Johnson & Johnson acquired Guidant for $25 billion; Symantec put up $13.5 billion for Veritas; and Oracle bought PeopleSoft for $10.3 billion. According to an article in the January 2, 2005, issue of the New York Times, deals in 2004 were up 50 percent over 2003, which represents the largest yearly increase since 1998.
Why is this happening now in particular?
The short answer is: Confidence. Executives know the economy is doing well and new accounting and corporate governance requirements give them additional confidence in corporations. They're putting the scandals behind them and getting ready for boom times to come.
In addition, interest rates and inflation are both low, corporate profits are high, and corporations, having increased productivity to historic levels and postponed some hiring and capital expenditure for a time, are sitting on mountains of cash. Some harbingers of the 2005 M&A boom came in early 2004 when J.P. Morgan Chase bought Bank One for $58 billion, and Cingular Wireless bought AT&T Wireless for $41 billion. But as the election approached, the pace slowed, with September and October being among the slowest in history.
Now with the election behind us and the stock market on a roll, all the momentum returned — and then some. Kmart was in the starting gate with $11 billion in hand to buy Sears. A stampede of offers followed to tally up an amazing $357 billion in four dozen deals in a mere three-month period from November through January, according to a February 7, 2005, article in Fortune.
The overall number of deals rose eight percent to 8,313 last year, up from 7,702 in 2003. The dollar value surged 46 percent to $833 billion, up from $570 billion in 2003,...
