Global mergers and acquisitions (M&A) surged in January, posting its best first month of the year since 2000 with $224 billion in deals, data compiled by Bloomberg reveals. The activity included large takeovers of Luxottica Group SpA (LUX) and biotech company Actelion Ltd. (ATLN) in multibillion-dollar deals. However, some wonder how long this will last, given President Donald Trump's opposition to the merger between AT&T Inc. (T) and Time Warner Inc. (TWX).
S&P Global Market Intelligence had a higher estimate for the January M&A activity, a total of $270.5 billion from 4,700 individual deals, a 30% gain from 2016. The activity was driven by healthcare, luxury goods and energy. S&P also said it was the best January in 17 years. The first month of 2000 saw $426.8 billion in deals led by America Online Inc.'s $164 billion purchase of Time Warner Inc. (See also: Mergers and Acquisitions: Introduction.)
In 2015, many companies held off deals due to volatile market conditions and rising bond yields, which make M&A financing more expensive. That created pent-up demand that exploded in January, according to analysts who spoke with Bloomberg.
However, other key variables are helping fuel strong M&A activity, according to Joe Culley, head of equities & investment banking at Janney Montgomery Scott LLC., in an interview with Investopedia. "In general, M&A is being driven by stable credit markets, equity valuations that are either at or near all-time highs and also pedestrian GDP growth in many parts of the world," he told Investopedia. Corporations and private equity firms are are also sitting on record levels of cash, Culley said. (See also: Where do companies keep their cash?)
The Trump Effect
Some market observers say Trump's objection to the AT&T-Time Warner deal is a reason for concern, according to Bloomberg. As a result, some analysts say it's likely that many chose to do deals in January before Trump "really gets into a stride," Jasper Lawler, who works for London Capital Group as a market analyst, told Bloomberg.
Not everyone shares this concern. Trump has "assembled a fairly pro-business cabinet," noted Culley.
Consultant Paul Aversano told Investopedia that President Trump has expressed an interest in cutting regulations and firing up economic growth, which could both support M&A activity. Aversano is global practice leader for consultancy Alvarez & Marsal's Transaction Advisory Group. In particular, cutting regulation could "help drive M&A," Aversano said.