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Merger Monday’s Return — What More M&A Means for Investors

Big deals announced recently are a sign that merger and acquisition activity could be picking up in the second half of 2013.

And that could be bullish for stock market investors if buyouts heat up with more big Merger Monday announcements.

Recent big-ticket mergers include:

  • The $35 billion merger between Omnicom (OMC) and Publicis Groupe (PUBGY) to create the world’s biggest advertising agency, with more than $23 billion in combined revenue annually.
  • Generic drug maker Perrigo (PRGO) snapped up Irish biotech Elan (ELN) for $6.7 billion.
  • Hudson’s Bay Company (HBAYF), the owner of Lord & Taylor, is buying Saks (SKS) for $2.4 billion.

According to Dealogic M&A data, global deal values in 2013, including mergers and acquisitions as well as buyouts to take a company private, are at $1.54 trillion — slightly higher than the $1.46 trillion in deals made at this point in 2012.

That might surprise you, since the number of mergers and acquisition deals hasn’t been enormous — but the price tags have obviously been impressive. Earlier this year, we saw some huge deals go down including:

  • American Airlines parent AMR Corp. (AAMRQmerging with US Airways (LCC) in a deal worth $11 billion.
  • Liberty Global (LBTYA) buying Virgin Media for $16 billion.
  • Comcast (CMCSA) purchasing the remaining portion of NBCUniversal from General Electric (GEfor $16.7 billion.
  • Warren Buffett and Berkshire Hathaway (BRK.Bbuying up consumer staples icon H.J. Heinz for $23 billion.

“You only need a couple of these deals to get other CEOs confident,” a Sanford C. Bernstein analyst told MarketWatch recently. “When you start seeing others buying, it doesn’t take a lot to get other companies jumping in.”

The fact that stocks are also rallying strongly could build a fire under prospective buyers, who don’t want their targets to move higher and outrun them over the next several months should the rally continue in earnest.

Throw in the fact that top-line revenue is hard to come by at many firms, and the urgency for a buyout to achieve growth is pretty compelling.

So what deals could be in the works?

Well, there’s obviously the continued talk about taking Dell (DELL) private. But on the merger front, Liberty Media (LMCA) is making overtures at Time Warner Cable (TWC), and that could certainly go down in the second half after continued consolidation in the telecom space.

But investors need to remember that buying a stock simply on a buyout hope is not wise. Make sure you have faith in the underlying company as a standalone business … otherwise you are simply betting all-or-nothing on the actions of a few corporate execs.

That’s a dangerous game. Because frankly, an investment thesis that relies on the wisdom of stuffed shirts in the C-suite doesn’t sound very compelling considering the number of overpaid and underperforming CEOs out there.

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Jeff Reeves is the editor of and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not hold a position in any of the aforementioned securities. Write him at or follow him on Twitter via @JeffReevesIP

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