Takeover Talk Heats Up, But M&A Has Been MIA In 2017
November has been a month of merger talk. Chipmaker Marvell Technology (MRVL) agreed to buy rival Cavium (CAVM) Monday for roughly $6 billion. Broadcom (AVGO) has tried to acquire fellow wireless chip giant Qualcomm (QCOM) for $130 billion, which would make it the largest tech takeover ever. Hasbro (HAS) has bid for rival toy maker Mattel (MAT). The media and telecom industries are basically in a speed-dating frenzy, with 21st Century Fox (FOXA) reportedly attracting many suitors for key assets.
XAutoplay: On | OffWhy now? No one unifying catalyst appears to be behind the chatter or loosening the taps to facilitate the flow of deals. And M&A is on track to reach its lowest point in seven years.
Still, while every company and industry has its own problems, cash, broadly, has not been not one of them.
Companies across the S&P 500 Industrials — S&P 500 index members excluding financial, utilities and transportation companies — were sitting on a record $1.5 trillion in cash or cash equivalents in the second quarter. That cash hoard likely hit another all-time high in the third quarter, said Howard Silverblatt, a senior analyst at S&P Dow Jones Indices.
“All the tools are there for M&A. The tools are there, the ability is there, the economy continues on,” he said, adding: “And every company has a list of other ones that they want to buy.”
Mountain Of Cash
A mountain of cash also makes a company more attractive to investor holding groups, he said.
But as GOP tax reform makes its way through Congress, nothing in the legislation pointed directly to a more M&A-friendly environment, he said. Despite the reports of corporate courtship, the numbers also don’t exactly show any dramatic uptick in merger activity from years and quarters past.
The tally of announced deals in the U.S. this year is on track to be at around 16,000. That would be the lowest since 2010, Richard Peterson, a principal analyst at S&P Global Market Intelligence, notes.
Peterson said that buyers might be worried about stretched valuations. He added that foreign purchases of U.S. businesses have slowed, and that souring sentiment on weaker industries like retail and automobiles could be making big private-equity deals look less attractive.
“With robust deal activity in recent years, buyers may be may finding it’s taking longer to assimilate acquisitions into operations,” he added.
So far this year, some $1.2 trillion in deals have been announced, potentially down from around $1.65 trillion last year and nearly $2 trillion in 2015, according to S&P Global Market Intelligence. The total value of deals announced so far this quarter was at $287.5 billion, well below the roughly $521 billion announced during the quarter a year ago. Deals announced in the third quarter of this year amounted to $322.5 billion.
And amid an economic recovery that, for many over recent years, has still like a recession, big companies have tried to snap up smaller ones because there have been fewer avenues to grow sales to Wall Street’s liking.
Consider the striking contrast between deals struck before the financial crisis and after. Since 2010, companies announced more than 140,000 deals, according to S&P Global Market Intelligence data. From 2000 to 2007, in the run-up to the financial crisis, there were around 77,000.
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Some of the merger talks have also come in industries that have faced technological upheaval in recent years.
Comcast (CMCSA), Disney (DIS) and Verizon (VZ), have set their sights on 21st Century Fox in one way or another, while AT&T has struggled to win approval for its planned acquisition of Time Warner (TWX). The FCC has voted to ease rules surrounding media ownership, potentially making future tie-ups easier. But the cable industry is also dealing with cord-cutting. Questions remain about whether Disney can throw enough “Star Wars” movies and streaming content at analysts to keep them from fretting over ESPN.
Meanwhile, Marvell’s chip business has struggled. Apple (AAPL) may or may not keep putting Qualcomm chips in its iPhones, and the two companies have been tangled up in a patent dispute. Meanwhile, Hasbro snagged Mattel’s license for Disney (DIS) toys last year, while Mattel suspended its dividend in October.
At least if more companies decide to continue to get together, the cash will be there.
“It all makes the stakes higher,” Silverblatt said. “If everybody has money, that means more people can get into the game.”
Marvell jumped 6.4% in the stock market today, while Cavium leapt 10.8%. Broadcom rose 1.1%; Qualcomm fell 0.4%.