Pick-and-Shovel Plays for Rising Mergers and Acquisitions
Investment banks are a good way to play the new M&A cycle.
The papers have been abuzz with merger and acquisition news. There's been the drama of the financial exchanges, with NYSE Euronext (NYX) announcing a merger agreement with Deutsche Boerse DB1 and subsequently twice rejecting NASDAQ OMX Group (NDAQ) and IntercontinentalExchange's (ICE) unsolicited higher bid for the company. Berkshire Hathaway (BRK.A) (BRK.B) was put in the spotlight after its acquisition of Lubrizol and related resignation of Berkshire CEO heir apparent David Sokol due to a conflict of interest issue. Megamergers have also resurfaced, with AT&T's (T) $39 billion bid for Deutsche Telekom DTEGY's T-Mobile USA unit.
The string of high-profile acquisitions and headlines provides evidence that we've entered into a new M&A cycle. Commonly touted interrelated factors conducive to overall M&A activity that appear to be present are rising share prices, senior management confidence, a positive trajectory to the economy, and access to financing. Certain company- or industry-specific factors such as high cash balances, low organic growth prospects, and shifting industry dynamics are also present.
Michael Wong does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.
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