Mega-mergers reflect growing confidence

Mergers & Acquisitions

Luxury retailer Saks agreed last week to be bought by Canada’s largest department store, Hudson’s Bay, for US$2.9 billion. On the same day, pharmaceutical company Perrigo paid $6.7 billion for Irish biotechnology firm Elan. A day earlier, advertising companies Omnicom and Publicis decided to join forces to create a $35 billion market giant.

The recent spike in activity reflects the return of the mega-merger and a gradual uptick in business confidence in the economy, analysts say. It has been most evident in the ongoing battle for Dell computers, with founder Michael Dell upping his bid for the company to $25 billion Friday, and the high-profile buyout of H.J. Heinz by Warren Buffett’s Berkshire Hathaway.

Although the number of mergers is down compared with the corresponding period last year, a series of mega-mergers has helped increase the value of merger activity in 2013 to $607 billion, from $486 billion during the corresponding period in 2012.

Activity is picking up after an uneventful 2012, when no mega-mergers were announced, analysts said. But it is still far from 2011 levels, when low valuations contributed to a rush for deals.

The availability of cheap corporate loans is helping spur the rebound in deals this year. The US Corporate Bond Index reached its lowest levels this year on 25 June, meaning that companies could borrow money more cheaply.

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