Investment bankers say conditions ripe for continued boom in mergers and acquisitions

Top investment bankers at J.P. Morgan and Goldman Sachs said Friday they expect corporate deal-making to continue at a brisk pace well into 2015.

“The conditions are right,” Christopher Ventresca, global co-head of mergers and acquisitions at J.P Morgan, said at the Society of Business Editors and Writers fall conference. “Companies have increased their dividends, executed share buybacks, all the playbook moves. Now it’s time to look outward.”

Acquisitions in 2014 have reached $2 trillion worldwide, according to Thomson Reuters, smashing the previous record from 2007 and causing many companies to look over their shoulders. Major deals have included General Electric Co.’s purchase of Alstom, a French manufacturing conglomerate, AT&T Inc.’s buyout of DirecTV, and Comcast Corp.’s merger with Time Warner Cable Inc.

“These are the bluest of blue chip companies,” said Gregg Lemkau, co-head of global mergers and acquisitions at Goldman Sachs. “That’s really what’s giving the mergers and acquisitions market such confidence.”

Equity markets have been responding in unexpected ways, often sending the acquirer’s stock price up. Usually, the shares of the acquirer decline as the market assesses the risk of the merger or acquisition to the company’s balance sheet.

“It’s going against our arbitrage math,” Lemkau said.

As a result, some aggressors have become hostile targets of buyouts themselves. Botox maker Allergan Inc. made a play last week for Salix Pharmaceuticals and ended up in the sights of Actavis PLC.

The Wall Street Journal reported the volume of such hostile deals this year at $557 billion.

The outlook for M & A activity is not without caveats. Ventresca said while he expects deal-making to continue apace in 2015, it’s unlikely to match this year’s meteoric rise. 

“There’s also geopolitical risk to take into account,” Ventresca said, referring to issues of political stability of South America and East Asia.

M & A activity could also subside if the Federal Reserve begins raising interest rates sooner than expected, Lemkau indicated. “We don’t see any major policy changes on the horizon.”

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