With interest rates on fixed-income securities hovering around all-time lows and a $2.03 trillion build-up of cash caused by cost cutting and market uncertainty, the mergers and acquisitions activity scene has exploded. Excluding the energy and power markets, deals throughout the first two quarters of 2010 have been scarce. Energy, on the other hand, has had a banner year with 2,050 transactions, exceeding 2007 record level by 66 deals.
IN PICTURES: 5 Tips To Reading The Balance Sheet

With escalated European activity in recent weeks such as GDF Suez's (GSZ.PA) $14.3 billion takeover of International Power, European M&A activity has increased by approximately 24% in the past year. Likewise, the frequency of deals in China has also surged not only on a domestic level, but on an international one as well. According to PricewaterhouseCoopers, China's "domestic and inbound M&A deal activity has rebounded strongly, reaching levels comparable to those seen at the peak before the financial crisis".
With the exception of the aforementioned regions and sectors, corporations remained fairly quiet through first half of the year. However, last week saw a 2010 record of almost $85 billion in deal value within a diverse mix of industries.

Build or Buy?
The major announcement last week was the unsolicited $39 billion bid for Potash Corp of Saskatchewan (NYSE:POT) by BHP Billiton (NYSE:BHP). Given that it takes more than five years to establish an operating mine, BHP could increase its reserves much more rapidly through a takeover than operational activities; completion of the merger would give BHP 20% of the global potash market. Since potash prices are well below their 2008-2009 highs, this could be an ideal opportunity to cheaply increase reserves before the prices begin to move up once again.

The same type of logic can be applied to the oil and gas industry. With the proliferation of horizontal drilling and various other enhanced oil recovery methods, companies may find it cheaper to acquire oil and gas fields from competitors than to undertake expensive and often risky exploration activities. With natural gas trading at only $4.12/MMBtu and oil at $73.46/barrel, the opportunity for even more energy deals in the second half of the year remains strong; perhaps even one the size of Exxon Mobil (NYSE:XOM) and XTO Energy, the largest merger in 2009.

Major Deals
Other notable M&A deals appeared in the technology and financial industry, both of which have been somewhat dormant through 2010. Dell (Nasdaq:DELL) will commence a tender offer for all outstanding shares of 3PAR (NYSE:PAR), a deal valued at $1.15 billion. On Monday, Dell's offer was trumped by a $1.6 billion offer from HP (NYSE:HPQ) for 3PAR. Also, Intel (Nasdaq:INTC) will purchase McAfee (NYSE:MFE) for $7.7 billion in cash. Furthermore, following the collapse of the credit markets, large banks stayed away from deals as uncertainty regarding regulations and financial quality plague the industry. Despite this, First Niagara Financial (Nasdaq:FNFG) will be moving forward with the largest financial banking merger of the past two years.

Bottom Line
The 9.5% unemployment rate remains a thorn to the U.S economy, causing downward pressure on stock prices despite strong earnings announcements. Similar to the trend in the energy industry whereby low oil and gas prices present ideal M&A opportunity, high unemployment can serve as a catalyst for other consumer-driven sector deals. Once unemployment figures show improvement, the possibility to acquire cheap assets may disappear. (For more stock analysis, see Dependable Dividends.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Investing

    Build a Retirement Portfolio for a Different World

    When it comes to retirement rules of thumb, the financial industry is experiencing new guidelines and the new rules for navigating retirement.
  2. Stock Analysis

    Net Neutrality: Pros and Cons

    The fight over net neutrality has become an amazing spectacle. But at its core, it's yet another skirmish in cable television's war to remain relevant.
  3. Personal Finance

    A Day in the Life of an Equity Research Analyst

    What does an equity research analyst do on an everyday basis?
  4. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Downside Hedged

    Find out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
  5. Mutual Funds & ETFs

    ETF Analysis: ProShares Large Cap Core Plus

    Learn information about the ProShares Large Cap Core Plus ETF, and explore detailed analysis of its characteristics, suitability and recommendations.
  6. Mutual Funds & ETFs

    ETF Analysis: iShares Core Growth Allocation

    Find out about the iShares Core Growth Allocation Fund, and learn detailed information about its characteristics, suitability and recommendations.
  7. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI USA Minimum Volatility

    Learn about the iShares MSCI USA Minimum Volatility exchange-traded fund, which invests in low-volatility equities traded on the U.S. stock market.
  8. Stock Analysis

    Should You Follow Millionaires into This Sector?

    Millionaire investors—and those who follow them—should take another look at the current economic situation before making any more investment decisions.
  9. Professionals

    What to do During a Market Correction

    The market has corrected...now what? Here's what you should consider rather than panicking.
  10. Mutual Funds & ETFs

    ETF Analysis: Vanguard Mid-Cap Value

    Take an in-depth look at the Vanguard Mid-Cap Value ETF, one of the largest and most popular mid-cap funds in the U.S. equity space.
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Hard-To-Sell Asset

    An asset that is extremely difficult to dispose of either due ...
  3. Sucker Yield

    When an investor has essentially risked all of his capital for ...
  4. PT (Perseroan Terbatas)

    An acronym for Perseroan Terbatas, which is Limited Liability ...
  5. Ltd. (Limited)

    An abbreviation of "limited," Ltd. is a suffix that ...
  6. BHD (Berhad)

    The suffix Bhd. is an abbreviation of a Malay word "berhad," ...
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>

You May Also Like

Trading Center

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!