The July 2015 Surge in M&A Activity

DOIhttp://doi.org/10.1002/jcaf.22127
Date01 January 2016
Published date01 January 2016
99
© 2016 Wiley Periodicals, Inc.
Published online in Wiley Online Library (wileyonlinelibrary.com).
DOI 10.1002/jcaf.22127
C
o
m
m
e
n
t
a
r
y
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

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT