Dealmakers on Wall Street have been busy in 2013 with some of the most recognizable names across corporate America becoming involved with mergers and acquisitions in the billions of dollars.
Early in the year American Airlines announced it would merge with US Airways in a deal worth $11 billion, that we now know is on hold due to the U.S. Department of Justice filing suit to block the merger.
Berkshire Hathaway, owned by Warren Buffet’s joined forces with 3G Capital from Brazil to grab H.G. Heinz the food conglomerate for $28 billion. In just the first quarter of 2013 there was over $219 billion spent on mergers and acquisitions by companies doing business in the United States.
In 2013, for the same period of time that amount was just $85 billion. On the current pace, U.S. companies will spend more money on mergers in 2013 than any previous year since 2000.
The activity helps not only the shareholders of the firms that are acquired, but also a myriad of investment bankers on Wall Street.
The mergers also have something to say about the state of the economy. Since late in the 19th century, mergers and acquisitions tended to take place in waves and were spurred on by credit availability, government policy changes and new innovation bursts in the private sector.
In the 1970s, the airline industry saw a number of mergers thanks to the government deciding to deregulate the industry. During the 1990s, the banking industry went through a phase of consolidations.
However, mergers and acquisitions most important or biggest motivation is economic conditions and particularly during a strong stock market.
Mergers are often times financed using stock, and when stock prices are high, companies have sufficient resources to make such large purchases.
With the stock market climbing to record heights in 2013, there is sure to be more mergers and acquisitions as the year finishes.
One reason why mergers and acquisitions are on the rise is the Federal Reserve’s quantitative easing has remained in place and should remain through until February or March of 2014 due to the latest jobs reports and worries over the fiscal wars taking place in Washington again in February of 2014.