The Strategist

May Blossom of American M&A Market

06/02/2015 - 17:09

In May, US companies took part in the mergers and acquisitions totaling $ 243 billion, which was an absolute monthly record. Record volumes in M & A were the result of increased activity among the companies of high-tech sector and telecommunications, as well low interest rate held back by Fed.

According to Dealogic research firm, the total volume of mergers and acquisitions between companies of which at least one is an American, was in May of $ 243 billion. This is an absolute record for monthly activity – there was nothing close even in the run-up to the financial crisis (May 2007 - $ 226 billion), and in the midst of the high-tech boom (January 2000 - $ 213 billion).

Transactions between companies of the telecommunications sector totaled $ 92 billion, or 38% of the total volume of transactions in May. High-tech sector companies provided $ 49 billion (20%), companies operating in the health sector are in third place with $ 33.8 billion (14%). The experts believe that this year, mergers and acquisitions in the high-tech sphere will continue. "We believe that in 2015, we will see the transaction between the companies of the sector", - said analysts of high-tech market of the company PricewaterhouseCoopers in their report at the end of last week.  

The most notable merger was a deal between processors producers Avago and Broadcom, announced in late May on the merger at $ 37 billion. This was one of the largest deals in this segment since the late 1990s. In the communications sector, a megadeal at $ 55 billion were noted in broadcasting comanies Time Warner Cable and Charter Communications. The various transactions are explained in different ways - from the desire to save on research surveys by combining R & D-units (for pharmaceutical companies), to combat competitors for the lucrative market of cable television (for media companies).

Although, experts call Fed's decision not to raise interest rates in June the main reason for a sharp rise in M & A in the United States. As we already know, the Fed has postponed the move until at least the fall, so now companies are rushing to take advantage of cheap borrowed money to absorb their competitors or reduce costs through synergies.

Also this year, we could see a record number of mergers and acquisitions among the manufacturers of microprocessors - according to the company Dealogic, from the beginning of the year the amount of transactions in this sector totaled $ 26 billion, which is twice more than in the whole of last year. Among the deals of the year - NXP Semiconductors bought another manufacturer of microprocessors - Freescale Semiconductor - in March for $ 11.8 billion. In addition, two more players in this market, Intel and Altera, are in the merger talks too. Intel is offering $ 54 per share Altera, which is 15% above the price at which the company's shares traded on Thursday ($ 47). The amount of the deal could reach $ 15 billion. However, earlier this year, Altera has already rejected Intel’s similar proposal.

According to experts, the reason for the increasing number of mergers in the microprocessor market is the slowing revenue growth of producers and the tendency of companies to compensate significant costs by the expansion of their market share.