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
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