The near-record pace of deal-making in North America is likely to continue as cash-rich companies, fueled by low borrowing costs, look to expand during the economic rebound, experts say.
During the second quarter, companies announced 5,712 deals with targets in the U.S. or Canada at a combined disclosed value of $604.52 billion, according to S&P Global Market Intelligence data. The number of deals was only slightly lower than the 5,808 announced in the first quarter of the year, which was the highest quarterly total this century.
Acquisitive companies have been on a tear of purchases since September 2020 as government spending and supportive monetary policy removed the risk of mass defaults. Even as U.S. President Joe Biden’s administration targets greater scrutiny of alleged anticompetitive activity, the conditions supporting the breakneck pace of deal-making appear primed to last, experts say.
“There is an incredible, massive merger wave,” Robyn Shapiro, communications director at the American Economic Liberties Project, an anti-monopolist organization, said in an interview. “Based on what we’re seeing, 2021 is on track to be an unprecedented year for acquisitions.”
Bouncing back from the COVID-19 slump
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In the first six months of 2021, the disclosed value of M&A deals totaled $1.2 trillion, compared to just $287.50 billion in the first half of the pandemic-affected 2020.
M&A activity slumped in early 2020 as COVID-19 spread into North America and companies prioritized building cash buffers over investment. But as the economy began to recover, companies found themselves with extra money to burn.
“There is a lot of excess cash on the balance sheet. Some have used that money to deliver and pay down their debts, others have used that money to acquire or consolidate,” Ramki Muthukrishnan, senior director and head of leveraged finance at S&P Global Ratings, said in an interview.
Companies borrowed from bond markets at record amounts in 2020 to improve their liquidity. Bond issuance remains strong in 2021 as companies look to borrow at low levels, but now they are refinancing existing debts at lower rates or using cash to expand.
M&A-related issuance by U.S. investment-grade rated companies surged 50% in the first half of 2020 to $115.48 billion, according to data from LCD.
Source: Spglobal