M&A activity proves rewarding

Engaging in M&A appears to be paying off as the markets finally start to reward businesses that got back in the action early on.

As deals start to tick over again, reports from JPMorgan have shown that businesses that are getting back into the swing of things early are reaping the benefits. The report found that, when looking at data from the fourth quarter of 2012, companies launching acquisitions have enjoyed a one per cent average jump in their share price in the day after a deal was announced. An increase of four per cent was seen a month after the deal announcement.

Data from Thomson Reuters showed that the volume of M&As in the year to date increased by 27 per cent in comparison with the previous year. However, much of this increase came over the space of just a few days and followed months of decline.

Things are clearly starting to pick up but analysts have suggested that the news has been a long time coming. Hernan Cristerna, head of M&A for the EMEA region with JPMorgan, told the FT: “There is renewed excitement on the M&A floor. The conditions have been in place for some time, repaired balance sheets, attractive valuations … but I do sense that confidence is on the rise.”

The reasons behind this boost in confidence are many and varied but they revolve around the return of more buoyant debt and equity markets, as well as the broader improvements in trading conditions, such as the reduced threat of a euro break-up and greater security for investors in emerging markets.

But despite the renewed round of confidence, past mistakes are likely to still be in the minds of investors, which should prompt more considered purchases on the part of businesses. Andy Cox, UK head of transaction services with KPMG, told the FT: “One of the consequences of this caution may be that the deals we see from now might be much more successful than many of those of the past decade.”

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