Mar 25, 2015 4:57 PM

Merger momentum keeps on rolling with Heinz deal for Kraft

The Associated Press

NEW YORK (AP) Wall Street's deal-making renaissance shows no sign of ending.

Heinz's $45 billion acquisition Kraft Foods, announced Wednesday, has helped maintain the momentum in the market for mergers and acquisitions.

So far this year companies globally have struck deals worth $802 billion, according to data provider Dealogic. That compares with $733 billion in the first quarter of 2014 and makes it the best first quarter for deal-making in at least five years.

Other big deals in the works include Simon Property's bid to buy rival Macerich, which owns and operates shopping malls, and AbbVie's deal to buy Pharmacyclics, a maker of cancer drugs.

Rising confidence among top-level executives about the outlook for the economy is key to the surging number of deals, says Neil Dhar, U.S. Capital Markets Leader at PwC.

In the immediate aftermath of the recession, companies concentrated on cutting costs, focusing on survival rather than expansion. That focus, combined with an improving economy, helped them build up huge cash piles.

Now, as the unemployment rate has fallen and growth has picked up, executives have become more optimistic about the future and want to think about growth. Corporate leaders are also getting more pressure from shareholders to boost growth.

Financial markets are helping too. A six-year rally in stocks since the end of the recession is boosting confidence and with interest rates remaining low, acquirers can borrow money cheaply to finance deals.

"Generally speaking that landscape seems to be ... pretty positive," says Dhar, an expert on deals. "When you see that, people are more ambitious, they get pushed more by their boards, and by their shareholders, on how they're going to grow."

One of the quickest ways of growing, of course, is acquiring one of your rivals.

The number of deals has been increasing steadily since the end of the recession, reaching $3.6 trillion globally last year, the third-highest on record after 2007 and 2006.

The stronger dollar should also lead to more U.S. companies making acquisitions overseas, says Rich Jeanneret, Americas Vice Chair of Transaction Advisory Services at consultant EY. The dollar has surged against most major currencies in the last six months. The U.S. currency has gained 14 percent against the euro in that period, and 9 percent against the Japanese yen.

The rising dollar "creates buying opportunities for companies from the United States in other parts of the world, particularly Europe," says Jeanneret.

These are the five biggest deals so far this year that have involved U.S. companies, according to Dealogic.

Target CompanyDeal Value ($ bln)AcquirerIndustry
Kraft Foods Group45.37H.J. HeinzFood & Beverage
Macerich21.84Simon PropertyReal Estate
Pharmacyclics20.97AbbVieHealth care
Regency Energy Partners17.9Energy TransferUtility & Energy
Hospira17.1PfizerHealth care


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