2014 promises to be a big year for mergers and acquisitions, with the value of deals worldwide hitting $2.4 trillion, $982 billion in the U.S. alone. Though still well below prerecession peaks, that’s a solid 10% increase from 2013 in both cases.
One reason for the increase is the abundant financial resources available to businesses. Start with the $1.93 trillion in cash that corporations are sitting on. Add to that the buoyant stock markets, strong profit growth and low interest rates. All help provide the wherewithal to grow.
A second reason we expect to see more M&A activity this year is the brisker economic tempo, promising good returns to businesses that expand. “The intensity of merger activity and the health of the economy go hand in hand; if the economy is stable or growing, then M&A activity is going to be stable or growing, too,” says Amanda Levin, editor of Mergermarket in New York. “I think that companies feel more confident about the economy’s potential, and as long as that continues we’ll see a pickup in activity.”
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Budget détente in Washington helps, too. After many months of disruptive partisan warfare, the current quiet is soothing corporate executives’ worries about fiscal cutbacks.
For smaller firms, demographics play a role as well. Baby boomer business owners are reaching the stage when they want to cash out and retire. Selling to a larger firm offers them a convenient exit strategy. “This is the middle market, generally businesses valued at $1 billion or less, many of them family owned and less affected by things like government shutdowns that may influence bigger companies’ decisions,” Levin notes. “So when it is time for them to sell, because of age or a wish to pass on the business or whatever, they sell.”
Among sectors ripe for consolidation:
Technology. Deep-pocketed, mature firms will aim to position themselves for future growth by acquiring the latest innovations through takeovers. Start-ups in California’s Silicon Valley, Austin, Texas, Boston and elsewhere are more likely to find eager suitors than in some past years.
Energy. With the U.S. poised to become a net exporter of oil by 2020 and decades of natural gas supplies available to be tapped, oil and gas exploration and development are fertile ground for M&A activity. Smaller operators in the oil and gas boom are well positioned to cash in while their bigger brethren seek economies of scale. Also likely to see consolidation: Utilities plus power generation and mining firms.
Media and communications. Sirius XM Holdings, for example, is being courted by majority owner Liberty Media. Also lots of activity among cable firms, beefing up to better compete with giant Comcast. Charter Communications’ aggressive wooing of Time Warner Cable has already spurred a $61-billion proposal -- and gotten a no.
Health care providers, driven partly by Obamacare. To maintain revenues, some providers will expand by taking over others -- especially smaller independents -- that see a sale or partnership as better than sticking out a tougher environment alone.
Pharmaceuticals. Powerhouses, such as Bristol-Myers Squibb and Merck, will be on the prowl, seeking access to promising cancer, antiviral and specialty drugs. And, driven partly by expiring patents on some of their well-known profit generators, they’ll likely try to position themselves to compete better with generic medicines.
And retail, especially bricks-and-mortar firms, as online competitors continue to strip away sales. Firms, such as American Eagle Outfitters, with not much debt, strong cash generation and good brand recognition are likely to be attractive targets.
-
Four Surprising Signs You’ll Never Retire (and How to Fix Them)Gearing up to retire? If any of these four signs ring true, you may want to make some changes before you do.
-
Stocks Rise After Trump-Powell Fed Tour: Stock Market TodayNvidia hit a new all-time high intraday, but another renowned semiconductor name and some less iconic stocks were bigger movers Friday.
-
AI-Powered Smart Glasses Set to Make a Bigger SplashThe Kiplinger Letter Meta leads the way with its sleek, fashionable smart glasses, but Apple reportedly plans to join the fray by late 2026. Improved AI will lure more customers.
-
Breaking China's Stranglehold on Rare Earth ElementsThe Letter China is using its near-monopoly on critical minerals to win trade concessions. Can the U.S. find alternate supplies?
-
What New Tariffs Mean for Car ShoppersThe Kiplinger Letter Car deals are growing scarcer. Meanwhile, tax credits for EVs are on the way out, but tax breaks for car loans are coming.
-
AI’s Rapid Rise Sparks New Cyber ThreatsThe Kiplinger Letter Cybersecurity professionals are racing to ward off AI threats while also using AI tools to shore up defenses.
-
Blue Collar Workers Add AI to Their ToolboxesThe Kiplinger Letter AI can’t fix a leak or install lighting, but more and more tradespeople are adopting artificial intelligence for back-office work and other tasks.
-
Will State Laws Hurt AI’s Future?The Kiplinger Letter Republicans in Congress are considering a moratorium on state AI laws. But it’s likely a growing patchwork of state AI regulations will be here for a while.
-
The Economic Impact of the US-China Trade War
The Letter The US-China trade war will impact US consumers and business. The decoupling process could be messy.
-
AI Heads to WashingtonThe Kiplinger Letter There’s big opportunity for AI tools that analyze MRIs and other medical images. But also big challenges that clinicians and companies will have to overcome.
