The flood of mergers hitting the US is even bigger than you think it is

AT&T signage is displayed on a monitor at the New York Stock Exchange in New York.
Michael Nagle | Bloomberg | Getty Images
AT&T signage is displayed on a monitor at the New York Stock Exchange in New York.

It's been a good month for mergers and acquisitions.

Low interest rates and better growth prospects are spurring companies to either fuse together or snap each other up — making the value of U.S. M&A deals announced this October the second-largest month ever recorded.

Against a heated political backdrop that appears to point to tougher regulations ahead, the largest tie-up of the year was announced over the weekend, a $85-billion-plus pact between AT&T and Time Warner. Then came a series of other announcements, including Qualcomm's nearly $40 billion agreement to buy NXP Semiconductors on Thursday.

Different research firms calculate the merger totals differently, but S&P Global Market Intelligence puts the value of mergers and acquisitions involving U.S. companies at $265.3 billion for the month, making it the second-largest month of such announcements ever.

"I think we had a little pause in the first quarter when there were really big fears about the possibility of a recession. Then you had the Brexit uncertainty," said David Lefkowitz, senior equity strategist at UBS Wealth Management Americas.

Right now, however, "people are more comfortable in the environment, and they're willing to engage again and maybe on the margin it looks like interest rates are starting to creep up," Lefkowitz said. That looks like one of the factors "that generated this activity this week."


Global bond yields have been on the rise and jumped even higher Thursday, with some benchmark yields hitting multi-month highs. While strategists expect rates to remain relatively low, central bank sentiment appears to be less stimulative than it has been, not just in the United States but in Europe and elsewhere as well.

"I think rates are more of the dominant factor, because borrowing costs are so low," said Richard Peterson, senior director, at S&P Global Market Intelligence. He also said even with October's acceleration in M&A activity, the year-to-date value of those announced U.S. deals is still nearly 18 percent lower from the same period last year.

Granted, 2015 was a record year for mergers and acquisitions. Last year, the value of global deals topped $4.6 trillion and more than $2.4 trillion for transactions involving U.S. firms, according to Dealogic. The tech sector has had the largest share of deals both last year and this year so far, the data shows.

Meanwhile, U.S. and global growth looks set to maintain a steady pace. Global growth is expected to improve to 3.4 percent next year, while U.S. growth is set to rise to 2.2 percent, according to the International Monetary Fund's latest world outlook.

"I think it is a search for growth, but it's easier to be brave when ... you think the economy is relatively stable than bracing for a recession," said David Kelly, chief global strategist at JPMorgan Funds.

"The political environment is encouraging companies to complete a lot of M&A sooner than later regardless of who is elected president, and regardless of the composition of the Senate" -David Bahnsen, chief investment officer, The Bahnsen Group

Potentially higher rates, moderate growth prospects, and large amounts of cash on hand increases the competition for companies to find value in each other, analysts said.

"That's making some deals happen sooner, happen faster, and at higher prices than we've seen before," said Rodrigo Slelatt, partner at management consulting firm A.T. Kearney.

He expects to see continued "healthy" volume in consolidation of industries, as well as more combination of different kinds of companies in certain sectors such as media and high tech as those firms search for innovation.

Some analysts also noted the election cycle could be a factor in the pickup in deal-making.

S&P's Peterson said M&A activity has tended to rise in the fourth quarter of U.S. presidential election years going back to 1996. In three of the past five such years, the quarter saw more than $200 billion in announced deals.

"The political environment is encouraging companies to complete a lot of M&A sooner than later regardless of who is elected president, and regardless of the composition of the Senate," David Bahnsen, chief investment officer of financial advisory firm The Bahnsen Group, said in an email. He said many of this year's deals have come under scrutiny from both political parties.

"Increased protectionist sentiments will make these deals more challenging in the future no matter what the outcome of the election," he said, "so companies feel the need to move quickly."