The July 2015 Surge in M&A Activity

• DOI: http://doi.org/10.1002/jcaf.22127
• Date: 01 January 2016
• Author: James B. Edwards
• Published date: 01 January 2016

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© 2016 Wiley Periodicals, Inc.

Published online in Wiley Online Library (wileyonlinelibrary.com).

DOI 10.1002/jcaf.22127

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The July 2015 Surge in M&A Activity

James B. Edwards

Mergers and acquisitions

(M&As) have finally

reached levels that

existed during 2007, proceed-

ing the recession that began

in 2008. A stampede of M&A

transactions took place during

July 2015. Whether this means

growth ahead or irrationality

remains to be seen.

THE REAL BOTTOM LINE

From the owners of capital

perspective, Warren Buffett val-

ues companies based on their

ability to generate consistent

earnings and cash. He focuses

on intrinsic value, which he

defines in each annual report of

Berkshire Hathaway as follows:

Intrinsic value is an

all-important concept

that offers the only

logical approach to

evaluating the relative

attractiveness of invest-

ments and businesses.

Intrinsic value can be

defined simply: It is the

discounted value of the

cash that can be taken

out of a business dur-

ing its remaining life.

Mr. Buffett advises a sound

ownership change transaction

is one that provides the pur-

chaser in any M&A transaction

a reasonable price for whatis

acquired. In other words, it

could be said that the “pur-

chaser should get what they

paid for.” If too much is paid,

the emerging business may

not generate a healthy return

on investment. This leads

to actions such as downsiz-

ing which results in employee

layoffs and shutdowns of

otherresources deployed in

communities.

TURNING POINTS

Beginning with the business

recession that began in 2008,

we have witnessed a signifi-

cant decrease in M&A activity

lasting through 2013. During

2014, M&A activity increased

substantially. Apparently, deal-

makers began to anticipate

that economic and market

conditions became and will

remain positive in the foresee-

able future. Some felt that the

business boom is back.

In a special study con-

ducted by KPMG an impres-

sive 82% of respondents said

they were planning at least

one acquisition in 2015; 19%

planned to make two acquisi-

tions.1 Deloitte confirmed these

expectations in their survey of

2,500 respondents from corpo-

rations and private equity firms

where they found that 85% of

corporate respondents expect

2015 to be a strong year for

M&A.2

According to Dealogic,3 a

leading M&A activity track-

ing organization, the first three

quarters of 2015 experienced

a significant amount of M&A

activity. This momentum began

in 2014 and has continued

through September 2015 (as of

the time of the writing of this

commentary on October 2,

2015).

Global M&A volume in

July 2015 totaled $549.7 bil-

lion. This was 8% higher than

the June 2015 total of $506.8

billion, and the second high-

est monthly volume on record

behind the total of $559.2 bil-

lion in April 2007. However,

the number of deals in July

2015 totaled 3,112 deals, which

is 222 below the last 12-month

average of 3,334 deals. This

indicates that the average dol-

lar amount of the deals dur-

ing July was higher. Global

deal value increased at a much

higher rate than deal volume,

largely caused by a high num-

ber of mega-deals. It appears

that dealmakers were willing