Dividends and Mergers and acquisitions hit global 3 year low amid pandemic, despite recovery in 2nd half of 2020

The sexy part of investment banking is mergers and acquisitions because 2 companies join forces to have greater market share and expand their offerings. The reality is do the 2 companies join to become a stronger force? sometimes yes, sometimes no. Not surprising in 2020, when governments shut down the movement of people, mergers and acquisitions were down, for a while they almost stopped.

In an article by Joshua Franklin and Pamela Barbaglia of Reuters, Cary Kochman, Citigroup’s global co-head of M&A said the biggest story has to be enormous rebound we have experienced. After almost no activity, we went through a 3-5 year cycle in just 6 months.

The value of M&A globally dropped 5% to $3.6 trillion on data from Refintiv. There was 48,226 deals compare with 50,113 in 2019. A stock market rally and access to cheap financing gave chief executives confidence to pursue transformative transactions again.

Dealmakers see 2021 picking up steam in 2021 with companies, private equity firms and SPACs (special purpose acquisition companies) all doing acquisitions.

M&A volume in the US was down 23% to $1.4 trillion which is 40% of global deal-making, Europe was $989 billion or 35% and Asia-Pacific was $872 billion.

Private equity firms capitalized on the plentiful financing available and did leveraged buyouts of $570 billion.

More than 200 SPACs have raised $78 billion. SPACs typically buy a company 5 times the size of their IPO or according to a Goldman Sachs report that could mean $300 billion in activity in 2021 and 2022.

Linking to dividend paying stocks, when you buy the companies you buy them because they are profitable and can pay a dividend. In a rising stock market and access to very inexpensive money, most companies think growth or getting bigger. It is relatively inexpensive for them to buy something to enhance product lines or services. Just because it is relatively inexpensive as an investor you have to ask is it a good thing which the company is merging with. If the answer is no, cash out and look at alternatives. If the answer is yes, watch the time lines of expected savings and market share.

There are more questions than answers, till the next time – to raising questions.

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