Mergers and acquisitions have surged, having the busiest month since November.
Key details
So far this month there have been $63 billion in announced transactions compared with $52 billion In July. August’s is the highest month since November’s $66 billion. Overall, M&A activity in 2022 is down from 2021.
One of the most outstanding deals this month is a $7.8-billion purchase by Vista Equity Partners of Avalara Inc., a tax-management software provider.
Why it’s news
M&A activity has been slow this year. There have been many deals sidelined due to financial volatility and a sluggish stock market, which had its worst six months in years. The recent rally in the the S&P 500, up for four straight weeks, has fueled much of the activity. According to merger arbitrage specialists, more stable markets and a rallying stock market are helping M&A recover.
On top of a drooping stock market, super-high inflation all through 2022 has led the Federal Reserve to raise interest rates, which is a key obstacle to acquisitions. All this has led to talk of an impending recession, with some economics saying we are currently in a recession.
Then, last week there was a strong jobs report—528,000 jobs added in July compared with the 250,000 expected—and this week the inflation number came in lower than expected, at 8.5% compared with 9.1% for June. The stock market rallied on top of a four-week rally, pumping temporary confidence into the M&A world.
Diversifying business will help companies withstand economic shocks, a move Goldman Sachs Group Inc. strategist Sienna Mori suggested in a report earlier this week.
Notable quote
And so now was the time to act. “Especially for private equity firms, the only purpose of their cash is to make acquisitions and that money does not have an unlimited lifespan. In the event that we are going into a recession, companies will need to continue to grow their top lines and making acquisitions could help accomplish that goal,” explains Westchester Capital Management investment officer Roy Behren explained.
