by Megan Jewell
As the New Year commences, individuals make resolutions for themselves to improve their health, well being, and attitudes. Similarly, companies look for ways to improve their reach, growth and economic standing in the competitive field.
Mergers and acquisitions seem to be the resolution for many businesses for 2005. The trend began in the fourth quarter of 2004 with an overall increase of 40% over 2003, according to Thomson Financial Services. 2004’s last quarter alone saw $250 billion in mergers, including assumed debt. This trend has not been seen since the 1990’s, before the recession of 2001. Obviously, the economy is still not where it was back in 1997. However, executives from companies such as Lehman Brothers, Inc. and Bank of America Corp. are already preparing for a further 15%-20% increase in mergers and acquisitions this year.
Numerous factors contribute to the recent trend. The stronger economy, a bullish stock market and low interest rates are just a few. Businesses are also less squeamish about the risk involved in M&A actions. Coming into 2005, companies have an excess amount of cash with the overall growth rate slowing down, states Stefan Selig, vice-chairman of Banc of America Securities; he believes that companies will invest that cash into mergers and acquisitions.
Some of the front runners in this wave of activity are industries such as software, which will continue its trend of consolidating from 2004. Other areas are retail, as can be seen by the recent acquisition of Sears by Kmart. The healthcare industry is continuing to grow, but the need for lower costs is forcing consolidations. Outsiders also want to merge: with the value of the dollar depleting, many foreign-based companies will be looking to acquire U.S assets while the dollar is cheap, states Jeffrey Williams, a veteran Morgan Stanley telecom banker. So be on the lookout for a busy year of movement within the industrial economy.
“Mergers: A Bit of Mania for 2005” by Steve Rosenbush; “Shake, Rattle, And Merge” by Peter Coyle, Emily Thornton, Michael Arndt, Brian Grow, Andrew Park. Both articles can be found at www.businessweekly.com.