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What’s the Mergers and Acquisition Trend Showing?

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Mergers and acquisition trend

The M&A (mergers and acquisition) (MNA) (MRGR) trend showed a rally since 1Q09. This rally continued until 4Q15. In 4Q15, the M&A deal was $11,150 billion. This quarter, the M&A deal is the highest quarterly M&A deal in the last ten years.

Companies do M&A to sharpen their business focus and diversification. It also helps them increase their performance and productivity. At times, companies do M&A deals to eliminate competition and gain a huge market share. To do an M&A deal, companies need free cash. The current cash holdings position of S&P 500 index (SPY) (QQQ) (IWM) companies is comparably higher compared to 2007. You can see this from the current level of the buyback position.

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Quarterly change in interest rate

The Fed maintained its key interest rate at a near-zero level since the 2008 global financial crisis. Before the crisis, the interest rate was comparatively higher. The S&P 500 index’s M&A deal count was at $9,000 billion in 2008. As the interest rate fell, the M&A deal had a strong performance until 4Q15. The recent rate hike by the Fed in December 2015 after nearly a decade, increased the anticipation among Market participants. They think that the Fed will tighten its key interest rate more in the near future. The M&A deal count level fell in 1Q16.

To learn more, read Global Economic Indicators Suggest Limited Upside for Global Markets.

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