In This Article:
(Repeats column that ran yesterday; no change in text.)
By Jamie McGeever
LONDON, June 21 (Reuters) - By some measures, the global merger and acquisition frenzy has never been greater, fueled by "TMT" mega deals that are drawing comparisons with the late 1990s boom and spectacular bust.
This is understandably unnerving many investors, given how mature the economic cycle and equity bull markets are right now. The U.S. economic expansion is the second longest since World War Two, and Wall Street is only three months away from its longest bull run ever.
Two mega deals in the U.S. tech, media and telecom space this month worth a combined $150 billion have brought back memories of investors partying like it's 1999. AT&T completed its $85 billion acquisition of Time Warner, and Comcast has offered to buy Twenty-First Century Fox's entertainment and international assets for $65 billion.
AT&T and Comcast are taking on $350 billion of debt between them to finance their deals, making them the two most indebted non-financial, private-sector companies in the world. Just as the U.S. interest rate hiking cycle is in full swing.
The records for economic expansion and market bull run are the 10-year periods ending March 2000, when the Nasdaq bubble started to deflate, and March 2001, the onset of the subsequent recession. There are signs we may be entering similar territory now.
Reuters data show that M&A mega deals this year, up to and including June 15, totaled $1.22 trillion, up 64 percent on the same period last year. They comprised a record 76 deals.
More significantly, that's 52.7 percent of $2.32 trillion total M&A, a new record share for the year to date, and on course to beat the previous calendar year record of 49.5 percent at the height of the tech boom in 1999.
It's a similar picture in the tech, media and telecom (TMT) sector, where mega deals so far this year stand at $401 billion, or nearly two-thirds of the TMT total. That's on track to beat the previous record of 59.2 percent in 1999.
Mega deals are defined as a deal valued at $5 billion or more.
One the one hand, a surge of mega M&A at the tail end of the cycle is to be expected. Companies can't sustain the growth rates of previous years, so executives look to grow by acquisition to keep shareholders happy.
But therein lie the pitfalls, as companies take on greater debt and risk. And some executives simply get sucked in by the whole boom: bigger is better, the good times will go on forever, and this time really is different.
The RBS-led $98 billion takeover of ABN Amro in 2007, Mannesmann's $202 billion takeover of Vodafone in 1999 and Time Warner's $181 billion tie-up with America Online in 2000 are all classic examples of executive hubris, chutzpah and ultimately, folly.