[FT] Have the markets really fallen in love with M&A?

Much has been made this year of the markets’ favourable attitude to mergers and acquisitions.

Bankers have pointed repeatedly to how positively the share prices of purchasing companies have reacted to deals, arguing that equity investors are supportive of companies looking for growth through acquisitions.

Conventional wisdom suggests that a buyer’s stock price will come under pressure at the announcement of a deal. In the past year that has not generally held true. Stock-for-stock merger deals, including Duke Energy’s deal to buy Progress Energy earlier this year, saw both companies’ share prices rally on announcement.

Elsewhere, purchasers from AT&T to Avis have seen a good response to acquisitions, even when the deals were unexpected and large, or where the opportunity seemingly came at a high price. The logic runs that investors are backing managers and boards in pursuing growth where options to grow organically have run out of steam.

In a low-growth economic environment, advisers add, inorganic growth becomes more important. So taking capacity out of an industry, as well as the potential benefit of further scope to cut costs, is applauded by investors where the outlook for top-line growth appears weak.

Investors may have also been giving companies credit for buying early in the (as-yet weak and uncertain) recovery, rather than waiting until competition increases and valuations rise.



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