The year 2007 is regarded as one of the best years for the merger and acquisition industry. So many deals were made, which pushed the global value to an impressive $1.4tn in just the first four months. 2014 is really close by with the global merger value being recorded at $1.2tn. Compared to 2013, this value has risen by an impressive 42%.
The stats are very close to each, but merger professionals say this year’s market is different from 2007. What has changed? The manner in which the deals are being financed is no longer the same. Back in 2007, all cash deals were preferred and companies borrowed billions of dollars for merging with other organizations in an attempt to grow. Among all the deals made, 76% were all cash deals. What about this year? All cash deals just comprise of 47%, which is the lowest value on record since the year 2001. And what about deals which are funded with stock? These are around 19% this year, and in 2007, they only made 8% of the total deals in the M&A industry.
Moreover, this year many deals are funded with both cash and stocks. Such deals take up around 33% of all the deals made, the highest value to be ever recorded. In 2007, this value was 14%.
The fact that stock is being used to fund the deals is just a portrayal of the equity value which many organizations have enjoyed last year. This trend has caused deals to be pushed to an even higher value. Facebook and WhatsApp deal used stocks, which resulted in a deal valued at $19 billion.
The head of a reputed bank told the press that though the stats indicated a positive 2014 M&A market, the frothiness of 2007 was still not there. 2014 market mostly comprised of bigger enterprises taking over startups through well-defined strategies.
Another merger professional stated that the deals which are being closed today are more rational and valuable than the ones seen in 2007.
Can other changes be noted as well other financing? Most of todays deals have been under the surface for quite some time, and were announced when the timing was right. These were not made in haste, and so the consequences should be positive.