Mergers and Acquisitions Perking Up Again
Whether or not you're personally convinced that the recession is just about over, those in the big-buck mergers-and-acquisitions game are believers.
Biotechnology stocks, for example, have made dramatic gains because investors consider them ripe for picking. Big drug companies want innovative products in place for an economic revival.
"There are all these biotechnology companies out there that have been dying throughout the recession and unable to get capital or funding," observed
Other deals include
In pharmaceuticals, there's been the
"It's all a sign you can't keep a good capitalist down and eventually greed will overcome fear," said
Stock is still available at a "30-percent-off sale price" and there is excess cash lying around, said Paulsen. "That boatload of cash is on hand at so many companies because nine months ago everyone was saying cash was king--even though they were earning nothing on it," he said.
While he doesn't expect a red-hot M&A market the rest of this year, he thinks it will continue to noticeably improve.
"It seems like a lot is happening because finally, after the whole economic crisis, some deals are actually getting done," said
Cash lets firms avoid issuing stock or paying high loan costs, he said.
"Some of these deals are tacit indication that the companies can't grow their businesses much beyond what they are now, so they're looking to fill some holes with key partnerships," said
Firms aren't using their traditional sources of financing, said Nolte. In the case of Kraft, financing for the deal was lined up well in advance of an offer being made.
"It's really a broad spectrum this year," he said. "We've seen deals in the food industry, entertainment, technology and oil industry."
There will be windfalls for some investors. Greatest gains typically fall to those holding shares of the company being bought, especially if there are several competitors due to a hostile bid. Meanwhile, the acquiring firm's stock often suffers on worries over whether the merger is logical or could stretch finances too thin.
Investors are buying a variety of shares in the likely target industries. Much of the acquisition activity will take place in digestible smaller firms, along with some larger companies if they have strong product lines.
The fact that mining company BHP Billiton has built up
Nonetheless, everyone is still into low risk these days. Lenders aren't over-lending, individuals aren't over-paying for houses, most firms aren't expanding their business and assets are still priced for "the depression that wasn't," Paulsen said.
The 2009 merger environment is "high risk and high reward," according to a recent report by the Transaction Services unit of
Here are the sectors best-positioned for mergers and worthy of monitoring by investors, according to the
--Technology is "poised for another wave" of consolidation because many of its companies have mature business models and healthy balance sheets.
--Energy is experiencing greater stabilization in crude oil prices. This industry features excellent cash-flow and growth prospects that make it a "consolidation hotspot."
--Pharmaceuticals and health care are now in the merger "spotlight," no matter what type of reform may be passed in
--Financial services consolidation will be "rampant," driven by mergers of necessity based on the distressed circumstances of some competitors. There will a flight to quality banks in the top one-fourth of the banking industry because they aren't so hamstrung by government oversight.
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Investing - Mergers and Acquisitions Perking Up Again
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