First-Quarter M&A: Bigger
The first quarter of 2006 will be remembered as a huge one for mergers and acquisitions.
With AT&T's (T) acquisition of BellSouth (BLS) pacing the trend, total merger volume in the U.S. was $331 billion from January through March, according to Thomson Financial, up over 19% from the first quarter last year.
But behind the headlines, a subtler trend has emerged. The total number of deals this quarter fell from both the previous and year-ago periods. With rising interest rates, higher stock prices and an economic expansion in its third year, companies may start being more cautious about their acquisitions.
"Despite the fact that we are growing at a good pace, the growth rates are going to slow," said Marc Pado, chief market strategist at Cantor Fitzgerald. "That in and of itself makes chasing a deal less desirable."On average, total value per deal was $1.49 billion, compared with about $1.23 billion in the first quarter last year. Larger transactions kept the M&A market buoyed; it was a number of smaller ones that petered out. Many of the deals announced this quarter were from private equity companies, including Blackstone's acquisition of CarrAmerica Realty (CRE) for $5.6 billion. Their acquisitions usually come with a heavy debt ticket, something that will get more expensive with rising interest rates. "Not all of these deals are done by using cash," said Pado. "If there is any debt already or if they are going to have to incur any debt to make the purchase or combination, then the less profitable the deal will be." Many companies have also done a significant amount of levering and refinancing over the past few quarters, often using proceeds to buy back shares or pay dividends. As firms begin closing in on their leverage capacity, issuing new debt won't be quite as easy.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV