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Mergers in 2015 to Hit a Record, But Why?

The data firm Dealogic reports that global mergers and acquisitions in 2015 likely will hit an all-time record of $4.58 trillion. But why all the deal-making? Primarily because profit growth among companies has slowed dramatically, from an average of 5.5 percent in 2014 for S&P 500 companies to a negative 1 percent in the second quarter, following a scant rise of 0.9 percent in the first quarter of 2015. Given low to no growth in profits, the best way to show growth in revenues and profits oftentimes is to acquire another firm. Other reasons for the historic spike in merger activity is relatively cheap debt, high stock prices, and substantial cash on company balance sheets. Investors/shareholders expect and reward growth, either organic (internal) growth and/or growth by acquisition. Some reasons for lackluster corporate profits in 2015 is the high value of the dollar, falling commodity prices, and increased competition by global firms.

Based on: Dana Mattioli and Dan Strumpf, “Merger Activity is on Pace For Record,” Wall Street Journal, August 11, 2015, p. D1.

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