After nearly grinding to a halt earlier this year, the M&A market is finally showing signs of life.
Bank of America
announced that it would acquire
( FBF) for more than $40 billion in stock to create the nation's second-largest bank.
said it would buy
for $15 billion, and
agreed to acquire
Mid Atlantic Medical Services
( MME) for just under $3 billion.
"The first quarter of this year was a very, very slow period
for merger and acquisition activity, said Richard Peterson, chief market strategist at Thomson Financial. "Activity in the first three months of the year was the lowest since the second quarter of 1994. Now perhaps we're getting back to a more reasonable level."
So far this year, some 5,900 deals have been announced compared to 5,700 at the same time a year ago. The value of the deals currently sits at $400 billion, compared to $355 at a comparable period last year, Peterson said.
A three-year bear market sent the M&A market into a prolonged slump. Back in 2000, M&A volume amounted to about $770 billion but it slipped to $616 billion in 2001 and fell to just $432 billion last year. Recently however, some companies have started to open up their pocketbooks, emboldened by a stronger stock market and economic growth of close to 6% in the third quarter.
Indeed, a flurry of big deals has recently been announced. Canada's
said at the end of September that it would buy
John Hancock Financial
( JHF) for $10.5 billion, and in early October,
said it would buy
entertainment segment for $3.8 billion in cash.
So far this month, M&A volume has reached $104.7 billion, according to Peterson. That's the first time monthly activity has exceeded $100 billion since July 2001. "The fact that four of the biggest deals have been announced in the past 30 days certainly bodes well," he said.
Analysts are particularly optimistic about M&A activity in the financial arena following Bank of America's acquisition Monday.
"The deal appears to be a precursor of further industry consolidation," said Merrill Lynch analyst Matthew Burnell. "We believe lower-risk banking franchises remain attractive to bank buyers, while interest in brokers and asset managers has waned."
Burnell said companies like
Bank of New York
PNC Financial Services
are possible takeover targets.
All of these stocks were showing strong gains Monday. In contrast, potential buyers like
"We view the announcement today that Bank of America is buying Fleet as a milestone that should lead to more consolidation in the industry," noted Mike Mayo, an analyst at Prudential Securities.
The purchase "may feed speculation about other potential transactions with banks like
, PNC and
," he said.
In the health care space, SG Cowen analyst said further consolidation makes sense "given
the lack of deals, mature industry and sluggish jobs outlook." A weak labor market reduces the number of people enrolled in health plans.
This heightened M&A activity is good news for the nation's investment banks, which have struggled over the past few years with declining fees. "It's got to give a little bit of confidence to investment bankers," Peterson said. "Is it the road to heaven? Well, maybe not. But this is a positive sign."