LONDON -- The global boom in mergers and acquisitions is accelerating its already record pace, sparking concerns that the market is overheating.
A Thomson Reuters report says the value of global M&A deals in 2015 has approached $3.4 trillion -- including early October announced deals like brewer Anheuser-Busch InBev's $115.3 billion proposal to take over SABMiller -- a record for the period from Jan. 1 to early October. The level also is a record for the U.S. and the Asia-Pacific region, and the highest for Europe since 2008. This year is on pace to surpass the $4.12 trillion achieved in 2007.
One factor driving the increase is the number of megadeals between rivals in various industries. The beer deal would be the fourth largest in history, according to Thomson. Though SAB so far has turned down the proposal, a higher price could be offered or a hostile attempt could be launched.
With the sense that emerging economies are slowing down across the board, it is unclear whether demand will expand in the short term, leaving companies reluctant to make capital investments in order to chase growth. Companies instead are moving to expand the size of their operation in order to preserve clout in the market and profitability. Royal Dutch Shell offered $81 billion for BG Group in April as a survival strategy in a market where crude oil prices are falling.
Concern exists, however, as the M&A booms in information technology in 2000 and in finance in 2007 were followed by collapses. But some analysts, such as Peter Sullivan at HSBC, see no overheating of the market as the activity is spread throughout various sectors.
Yet with such huge amounts of money involved in the current deals, investment risk is rising. The largest deal ever occurred when Vodafone AirTouch launched a hostile takeover of Mannesmann in 1999, the battle for which inflated the final price to $200 billion. Vodafone overpaid and was forced to write off tens of billions of dollars in losses.
If negotiations drag on, the risk of a deal collapsing also increases. This was the case in 2008 when BHP Billiton abandoned its $140 billion offer to buy Rio Tinto as resource prices fell.
The index for credit default swaps for investment-grade European firms reached a two-year high in the beginning of October, and it is also rising in the U.S. As costs of financing these megadeals increase, some think they will become less attractive.