What Is a Mega-Deal?

A mega-deal is a large and costly transaction between two corporations, often involving a merger of the two or the acquisition of one by the other. The term was invented by the business media to describe such a transaction. It comes from the Greek megas, meaning "great."

Although mergers and acquisitions are fairly common occurrences in modern business, the most startling mega-deals involve one or more large and well-known brand names. A mega deal is big news because of its immediate interest to investors and, in many cases, its impact on consumers down the road.

  • A mega-deal is a large transaction between companies, usually involving a merger of the two or the acquisition of one by the other.
  • They are of immediate interest to investors and often has a big impact on consumers down the road.
  • Mega-deals may help a company expand its customer base, eliminate a competitor, or increase its resources.

The acquisition of Sprint USA by T-Mobile for $26 billion, expected to be finalized in 2019, is an example of a mega-deal. The historic (and eventually disastrous) merger of AOL and Time Warner in 2000 is another example.

The purchase prices reported in mega-deals are always estimates and subject to change, as the price usually involves some combination of cash and stock or stock shares only.

Understanding Mega-Deals

The mega-deal begins as a major business news story but can have repercussions for years down the road. The Sprint-T-Mobile mega-deal, for example, required formal reviews by both the Federal Communications Commission and the Federal Trade Commission.

Issues include whether the combined companies will have an unfair competitive advantage and could even represent a monopoly or near-monopoly in crucial telecommunications services in some regions of the U.S. Ten states moved to block the merger, arguing that higher prices for consumers will be the result.

It cost BB&T Corp. and Suntrust Bank $66 billion to create Truist Bank in 2019.

At first glance, mega-deals can sometimes seem odd. For example, the retail pharmacy chain CVS bought the health insurance giant Aetna for about $70 billion in a mega-deal that closed in late 2018. Both pharmacies and insurance companies are in the health business but other synergies are not immediately obvious.

It should be noted, however, that SilverScript, a major Medicare Part D plan sponsor, is already a unit of CVS. The company explained in a press release that it plans to integrate additional health services in all of its store locations. It says it hopes to make health care local and accessible, simplify how consumers access care, and lower costs.

Why Make a Mega-Deal?

A mega-deal may allow a company to expand its customer base, eliminate a competitor, or acquire valuable assets. It is often a way to add a complementary product or business line. It is often cited by the companies involved as a way to streamline operations by combining administrative departments and other overhead costs.

Some notable mega-deals include:

  • Chevron agreed to acquire Anadarko Petroleum in a 2019 mega-deal valued at $47.5 billion. The move expands Chevron's shale oil land gas production capabilities.
  • Newmont Mining's acquisition of the Canadian company Goldcorp for $10 billion in 2019 created the world's largest gold producer.
  • BB&T Corp. and Suntrust Bank became Truist Bank after their $66 billion mega-merger in 2019 created the sixth-largest U.S. bank.