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Merger activity is finally starting to pick up.
Thus far in 2024, global deal activity is up 55% over the same period last year, according to Bloomberg. And large deals are particularly popular: There have been 56 announced acquisitions of over $500 million this year in the US alone, according to Dealogic. Capital One’s (COF) proposed $35 billion takeover of Discover (DFS) this week served as the latest megamerger announcement.
All told, they add up to a total value of more than $277 billion, the biggest tally in at least the past five years.
This all seems great for lining investment bankers’ pockets with fees, and fortunate for the shareholders of targeted companies. But what can regular investors do with this information?
Most of the investing pros we speak to say it’s tough — and ill-advised — to try to pick stocks based on whether they might eventually become acquisition targets.
Rather, the deal surge is perhaps better viewed as a sentiment tool. And so far this year, a positive one at that.
The activity is a “confidence builder for markets,” Jay Woods, chief global strategist at Freedom Capital Markets, told Yahoo Finance. “Rates have stabilized and have given companies more confidence to pursue deals. The number of deals is not excessive where there is a euphoric feel to it, but the sizes of the deals seem larger than normal.”
Another Jay — Hatfield, CEO of Infrastructure Capital Advisors — echoed that sentiment, noting a lively debate over the timing and magnitude of interest rate cuts still suggests the next move for rates is lower.
“We think that’s a perfect environment for corporations to raise capital and also pursue their consolidation objectives,” he told Yahoo Finance Live.
Whether acquirers are making their buys for offensive or defensive reasons, the rise in activity does seem to indicate two factors: confidence in a certain level of economic stability, and conviction that, at the very least, borrowing costs aren’t going to go higher.
All of which makes for a bullish macro vibe, for lack of a better word, in the market.
More specifically, Hatfield expects traditional investment banking leaders Goldman Sachs and Morgan Stanley, where he worked early in his career, to benefit as deal activity picks up.
“When you’re inside of it, what you realize is that an investment banking deal is not just good for the investment banking department, it’s phenomenal for sales and trading,” Hatfield said.
“And if a salesperson allocates deals, then there’s usually flow that comes back, and it’s also positive for wealth management.”
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