Stock market cycles and M&A activities 🤑
• The volume and value of mergers and acquisitions have risen and fallen in cycles, just like the economy.
• And, as the economic expansion that began in mid-2009 lasted for more than a decade – according to federal data, the longest since before the American Civil War – M&A reached unprecedented heights. The latest surge in transaction activity was the third such wave in the last three decades, and it lasted longer than the two before it.
• In a typical M&A cycle, deal volumes and values drop at the start of an economic downturn, which is frequently triggered by an exogenous event.
• Companies' management and boards of directors are typically hesitant to make large expenditures, fearful of expanding their businesses amid a downturn.
• As companies, private equity firms, and other investors reassess their portfolios and objectives, there is a growing willingness to purchase as others sell.
• During the cycle, lower target valuations boost acquirers' chances of seeing bigger returns. M&A activity picks up as the availability of targets grows. As more companies regain confidence and economic footing, valuations begin to rise again, lowering the quantity of acquisition targets and the likelihood of high profits.
• The sectors that have seen brisk deal activity have varied as this tendency has played out in recent M&A waves, and the finance for acquisitions has shifted over time, especially as the world's combined wealth has expanded.
Can we see a dip in M&A in the near future as we continue to inch closer to a possible recession?