The M&A records bringing out our inner Victor Meldrew
The total value of global mergers and acquisitions has never reached $1tn as quickly as it has this year – but, in the world of investment, records have not always proved a cause for celebration.
“Here on The Value Perspective we like to keep a close eye on global merger and acquisition (M&A) levels.
"Rather than viewing any increase in M&A activity as an indication the party is really about to begin for investors, however, we view it as more of a sign the die-hard revellers are eying up that last bottle of liqueur at the back of the cupboard and a neighbour is two nines into dialling the police.”
The above was written two and half years ago in our blog 'Get your coat' – and what had inspired our cold-eyed appraisal (which we concede some might take as party-pooping) was Thomson Reuters data showing global M&A had reached a total value of $2.18tn (£1.55tn) in the first half of 2015.
This was 38% up on the first six months of 2014 and the highest figure since 2007 – the year, of course, before the start of the global financial crisis.
Present levels of M&A are hitting unbelievable highs
Back in the present, those who would have accused us of mere party-pooping in 2015 might well now see us as more akin to Victor Meldrew.
For data from Dealogic quoted in this Financial Times piece has revealed global M&A hitting still more unbelievable highs, with deal-making up 50% on a year ago and 12% higher that at the same point in 2007, which remains the high-water mark (the maximum recorded value).
Most strikingly, the total value of global M&A passed $1tn on 20 March – the quickest it has ever reached that milestone.
Other notable numbers in the FT piece include activity in the UK and Japan being double what it was a year ago – and Germany up fourfold – while the average transaction size stands at a record $131m, reflecting the “transformative moves” businesses are taking, as one talking head approvingly observed.
Others the FT spoke with were similarly upbeat – “ideal environment”, “unique point” and so on – but, here on The Value Perspective, we are not so optimistic.
Optimism here is low
As we wrote in Get your coat: “This attitude, often mistaken for mean-spiritedness, is actually based on the simple observation that human beings – including company directors – are more inclined to invest when sentiment is good than when valuations are cheap.
“As such, there has typically been a strong correlation between M&A activity and stockmarket levels – and a long history of deals that destroy value rather than create it.”
In the world of investment, record highs have not always proved to be a cause for celebration and can just as easily indicate a level of market hubris that, as the old adage suggests, has been known to come before a fall.
Fund Manager, Equity Value
I joined Schroders in 2008 as an analyst in the UK equity team, ultimately analysing the Media, Transport, Leisure, Chemicals and Utility sectors. In 2014 I moved into a fund management role and have had experience managing Global ESG and Pan-European funds. I joined the Value investment team in July 2016 to focus on UK institutional and ethical-value portfolios.
The views and opinions displayed are those of Nick Kirrage, Andrew Lyddon, Kevin Murphy, Andrew Williams, Andrew Evans, Simon Adler, Juan Torres Rodriguez, Liam Nunn, Vera German and Roberta Barr, members of the Schroder Global Value Equity Team (the Value Perspective Team), and other independent commentators where stated.
They do not necessarily represent views expressed or reflected in other Schroders' communications, strategies or funds. The Team has expressed its own views and opinions on this website and these may change.
This article is intended to be for information purposes only and it is not intended as promotional material in any respect. Reliance should not be placed on the views and information on the website when taking individual investment and/or strategic decisions. Nothing in this article should be construed as advice. The sectors/securities shown above are for illustrative purposes only and are not to be considered a recommendation to buy/sell.
Past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested.