FT mergers

The last week of April started with promise as investors woke to the news that Pfizer may now be an interested party to purchase AstraZeneca, and ended with equities drifting from the highs as the day wore on. The strength of an economy and the performance of its equity market are not always correlated, but comments from the CBI that the economic outlook for the coming three months was extremely strong, may have added support to UK equities at the start of the day. The White House imposing new sanctions on more Russian Oligarchs appeared to dampen the mood somewhat. The US macro news, mainly in the form of housing data, showed an improvement over last month and probably confirms that the Federal Reserve will taper by another $10bn on Wednesday. Towards the end of the US trading day there were a couple of encouraging signs; the Vix closed lower having risen by 7% at one point during the day; and the Nasdaq index closed unchanged having regained early losses. 

Mergers and acquisitions were featured in the Financial Times today as comparisons are always being sought with past experiences. The Financial Times compared today with the M&A boom of 2007, which is described as the final flourish of a financial system that had become chronically over exuberant. The total value of deals so far this year is $1.2tn, up 42% from this time last year. This figure compares with $1.4tn for the same period in 2007. One of the major difference between then and now is the level of equity used compared with 7 years ago. In 2007, 76% of deals were cash only; this time around that figure (according to the FT) is 47%. So far this year all-stock deals constitute 19% of the total, as opposed to 8% in 2007. It would appear that CEOs are happier to use their recently re-rated equity. Corporate activity has been conspicuous by its absence after the excess of 2007 as CEOs dealt with rebuilding balance sheets, uncertain economic backdrop and fears of the eurozone. Now that some of those fears appear to be receding, we have seen a sharp pick-up in activity; some of this year’s movement is probably making up for the lack of activity in the preceding few years. 

Earnings season continues, not particularly notable on Monday for the companies reporting but more for the volume. In the US, nearly 250 companies reported, and according to CNBC approximately 150 of them met or beat expectations.

Posted on April 29, 2014 .