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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.

09/04/2018

Simon Adler

Simon Adler

Fund Manager, Equity Value

“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.

Author

Simon Adler

Simon Adler

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.

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