The U.S. stock market has been surging. With a record number of highs, this fiscal year can potentially be the best year for the market in the decade and this usually brings along a boom in the corporate world. On the contrary, merger and acquisition deals have only been plodding along this year.
Many reasons contribute to the lagging of deals. One of the main reasons is investor fear owing to the instability and slow pace of the U.S. economic recovery. Investors worry about the US government defaulting due to fights over the budget going on in Washington and fear that if the Federal Reserve is withdrawn too quickly, it could affect their growth.
Stock values are increasing, but investors are cautious about making big bets, keeping in mind the prevalent air of uncertainty in the market. Some people are holding back investment in stocks because they consider them to be too expensive to afford within their earnings.
After 2007, mergers decreased drastically as companies were struggling for survival owing to the financial crisis posed by the Great Recession. Economic recovery is in progress while the stock market has experienced a surge. Since March 2009, the Standard & Poor’s 500 index from a recession low has climbed by 160 percent.
In February 2013, investors’ thought that the merger and acquisition market was heating up as a few deals involving big names beefed up. The move didn’t work as expected and instead of inspiring and motivating more mergers, it led to big deals going off the scene following these announcements.
In October, the U.S. government came dangerously close to defaulting on its debt and arguments between the political parties on the federal budget led to a partial U.S. government shutdown. Although this was a 16-day shutdown, it could have led to drastic implications on the financial markets around the world.
Analysts expect that deals will pick up as companies have large amounts of cash and the cost of borrowing is pretty low which should work to encourage deal making. However, as compared to 2007, deals done from January-September 2013, value 33 percent less and mergers and acquisitions value totaled to $761 billion only in comparison to $1.1 trillion in 2007.
Previously, the stock market would advance along the increase of merger and acquisition deals as bidding wars for acquiring companies end up pushing up the stock prices. The trend seems to be put in contrast now with lesser deals but an advancing stock market.
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