Blacquisition Friday

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What's going on?

Fresh data on Tuesday showed there were more takeover deals in November than in any other month this year – but wait, there’s more!

What does this mean?

After a spring in which everything came grinding to a standstill, dealmaking has bounced back with a vengeance. Companies across the world have already announced $760 billion worth of acquisitions this quarter alone – the most so far for the period since 2016 (tweet this).

There are a few reasons for all that activity. Some companies might be trying to snag a struggling business while it’s going cheap, while others – like European banks – might want to bolster their operations ahead of the pandemic-driven downturn. Or it might have nothing to do with coronavirus, and the company might just be sticking to its strategy of buying knowledge and skills they don’t have in house. That’s arguably what Salesforce and Facebook – which announced it was buying customer relationship management firm Kustomer on Tuesday – are doing.

Why should I care?

For markets: What goes up… 

Acquisitions tend to cause both companies’ share prices to shift significantly, but usually in opposite directions. The target generally sees its stock rise, bringing it more in line with the offer on the table. But the buyer’s share price tends to fall, reflecting the extra risk the company’s taking on – either because investors think it could be paying over the odds, or because it’ll somehow have to successfully integrate the business with its own.

The bigger picture: CEOs get bored too.

Some economists have another theory about all these deals: company bosses might’ve had more time on their hands to come up with acquisition strategies during lockdown. Of course, that also means they might be trying to outdo each other with bigger and bigger deals. But that’s not necessarily the way to go, says McKinsey: the consultant has found that lots of smaller acquisitions over time – rather than one big bonanza – are the ones that add the most value.

Originally posted as part of the Finimize daily email.

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