Why October Brought a Resurgence in Mergers & Acquisitions
November, 03rd 2016
All year long, the merger and acquisition community has been bemoaning the paucity of mega-cap deals. Then comes October and ... boom! Three transactions that classify as "mega" vault into the ranks of top 10 deals for the year.
The roster for the month includes AT&T (T) agreeing to buy Time Warner (TWX) , which not only leaps to the top of the year's tote board of deals, at $108.7 billion, but enters the ranks of the five biggest mergers in history.
To give their due to the investment bankers who are distressed by the perceived disappearance of mega-cap deals, it should be noted the aggregate value of M&A transactions has, in fact, fallen by more than one-third through the first 10 months of the year, October's wave of big deals notwithstanding.
Why? It could be argued the M&A market was doomed as soon as we flipped the page on the calendar to Jan. 1, 2016. Fundamentals had actually begun to sour months earlier.
Remember that the public markets were besieged with an antic dose of volatility beginning last August: The VIX doubled in a 10-day period that month. The credit markets retreated. All of a sudden the relentless battle that greed wages with fear turned in favor of the latter.
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So rather than coming into 2016 with the momentum of a runaway freight train after two consecutive years of record mergers, the M&A market entered the year on crutches.
There was the Brexit, global terrorism, a GDP reading that struggled for a "2" handle. Then there was uncertainty over the direction of interest rates. The presidential election is getting hairier the closer we get to the second Tuesday in November.
All those factors are temporary because in little more than a week, we'll know the outcome of the election and in a month, we'll have some clarity on rates.
But what is a more permanent feature when it comes to the M&A market is multiples. Asset holders, having witnessed more than two years of "sky's the limit" for transaction prices, gave the same answer that Edward G. Robinson's character says motivates him in Key Largo: More.
So what changed in October?
The easiest answer would be that this is an anomaly rather than the start of a trend. Whether that analysis is on the money or not won't be resolved until later this month, if not the end of the year.
There's also the fact that a lot of weird things happen in October, and we're not just talking about the Donald Trump costumes on Halloween night.