What does a CEO do when the economy is in a persistent down turn and your business cannot expand or grow?
Jump at the time tested strategy of acquisition to gain market share seems to be the response in 2015.
Submitted by James Hall, BATR:
Yet a merger is no sure thing. Anyone remember AOL’s deal to buy Time Warner. How did that turn out? Just how much additional efficiency can be squeezed out of any company? In the era of part time contract workers and low wages, all the fat has been long gone. As for research and development in new technology or products, how will such innovation be marketed in an economy infatuated with the promise of Amazon Prime drone deliveries?
These simple questions cannot escape the pattern that surviving corporations are getting bigger. The easy way to pad sales and boost cash flow is to combine current operations. However, as any experienced manager knows, melting different corporate cultures into a smoothly greased machine can be a difficult task.
So let’s look at what a Wall Street Journal report says about Year in Review: Mergers Set a Record as Firms Bulk Up.
“Companies around the world struck $4.6 trillion worth of takeovers in 2015, edging out 2007 to be the biggest year ever for such combinations, according to Dealogic. U.S. corporations led the charge, inking $2.3 trillion in deals—also a record.
There is another number that perhaps best captures the moment: 58. That is how many mergers topped $10 billion, well ahead of the prior high of 43 in 2006.”
Access to cash is no impediment to M & A under the Fed’s easy money discount window. The bean counters and corporate lawyers keep burning the midnight candles to close all these deals. Once upon a time Wall Street was about raising capital to fund new business ventures. Could this surge in Corporate mergers and acquisitions are on a record pace this year, be a return to funding real business financing? James F. Peltz offers this assessment.
A company’s desire to buy another is one thing; ability is another. This year companies have been able to strike such a massive number of deals for several reasons.
With interest rates still low, businesses can borrow relatively cheaply to finance takeovers. The stock market, despite severe bumps late this summer and last week, remains at near record-high levels, and that gives buyers a strong currency to help pay for deals.
Also, “companies got lean during the recession and during that time they accumulated cash” they can now use for acquisitions, Lloyd Greif chief executive of Greif & Co., said.
At the end of the year, the important forecast for 2016 needs to look at the direction of the economy based upon this rush to remove competitors from the market place. The dominate motivation behind mergers and…