A number of clouds that hovered over the markets last year have
been removed, eliminating the uncertainty that hampered deal making.
The mega-merger is back.
For the corporate takeover business, the past half-decade was a
fallow period. Deal makers and chief executives, brought low by the
global financial crisis, lacked the confidence to make the audacious
multibillion-dollar acquisitions that had defined previous market
booms.
Cycles turn, however, and in the opening weeks of 2013, merger
activity has suddenly roared back to life. On Thursday, Berkshire
Hathaway, the conglomerate run by Warren E. Buffett, said it had
teamed up with Brazilian investors to buy the ketchup maker H.J.
Heinz for about $23 billion. The same day, American Airlines and US
Airways agreed to merge in a deal valued at $11 billion.
Those transactions were announced a week after announcement of a
planned $24 billion buyout of the computer company Dell by its
founder, Michael S. Dell, and private equity backers. And Liberty
Global, the company controlled by the billionaire media magnate John
C. Malone, struck a $16 billion deal to buy the British cable
business Virgin Media.
"Since the crisis, one by one, the stars came into alignment, and
it was only a matter of time before you had a week like we just
had," said James B. Lee Jr., the vice chairman of JPMorgan Chase.
Still, bankers and lawyers remain circumspect, warning that it is
still too early to declare a mergers-and-acquisitions boom like
those during the junk bond craze of 1989, the dot-com bubble of 1999
and the leveraged buyout bonanza of 2007. They also say that it is
important to pay heed to the excesses that developed during these
moments of merger mania, all of which ended badly.
A confluence of factors has driven the recent deals. Most
visibly, the stock market has been on a tear, with the Standard &
Poor's 500-stock index in the past week briefly hitting its highest
levels since November 2007. Higher share prices have buoyed the
confidence of chief executives, who now, instead of retrenching, are
looking for ways to expand their businesses.
A number of clouds that hovered over the markets last year have
also been removed, eliminating the uncertainty that hampered deal
making. Mergers and acquisitions activity in 2012 remained tepid, as
companies took a wait-and-see approach to the outcome of the
presidential election and negotiations over planned automatic tax
increases and spending cuts. The problems in Europe, which began in
earnest in 2011, shut down a lot of potential transactions, but the
region has since stabilized.
"When we talk to our corporate clients as well as the bankers, we
keep hearing them talk about increased confidence," said John A.
Bick, a partner at the law firm Davis Polk & Wardwell, who advised
Heinz on its acquisition by Mr. Buffett and his partners.
Mr. Bick said that big mergers had a psychological component,
meaning once transactions start happening, chief executives do not
want to be left behind. "In the same way that success breeds
success, deals breed more deals," he said.
A central reason for the return of big transactions is the
mountain of cash on corporate balance sheets. After the financial
crisis, companies hunkered down, laying off employees and cutting
costs. As a result, they generated savings. Today, corporations in
