Global M&A continues to rise with over $2.19 trillion recorded in the first half of 2015, according to Dealogic data. This is an increase of 31% from $1.67 trillion announced in the first half of 2014, and the second highest half year volume on record, following $2.59 trillion recorded in 2007. In addition, US targeted M&A reached a half year record high of $1.03 trillion this year, the first time on record any nation has broken the $1 trillion mark in a half year period.
These gains have been driven by an increase in “jumbo” deals, which are mergers that are greater than $5 billion in value, and account for 43% of all activity. Companies may find, however, that these rising valuations result in a difficulty to strike new deals.
When a company has already cut costs and is struggling to find growth, M&A is a way to increase revenues. These high valuations pose the risk that a company will borrow too much money or overstate the savings it can achieve from the new deal.
Bankers, lawyers and academics interviewed by the Financial Times raise concerns about the sustainability of the current boom. While some analysts claim the current cycle is very different from the one that preceded the financial crisis, it is possible that the high valuations coupled with a growing number of hostile deals indicate that we are headed towards a 2007 bubble. At this point in time, it is probably too early to tell.
The author would like to thank Simone Nash, summer student, for her assistance in preparing this legal update.