What's going on?
The first half of 2018 saw the most deals made in over a decade – over 17,000 – with companies buying one another left, right, and center (tweet this). Now that the hot and sleepy summer’s gone, dealmaking seems to be picking up again – so it might just be a record year.
What does this mean?
Wheeling and dealing is all the rage. Comcast finally won the battle for Sky over the weekend, and Michael Kors may agree to buy Versace after snapping up Jimmy Choo last year. Acquiring businesses is one way for companies to get bigger, fast. SiriusXM (with 36 million North American subscribers) is buying radio streaming rival Pandora (which has over 70 million monthly listeners). And taking over the competition is one surefire way to own a bigger piece of the market. Two of France’s biggest supermarkets allegedly were in talks about joining forces amidst a price war but, on Monday, said a deal wasn’t in their stars.
Why should I care?
For markets: Companies are spending while they can.
The stock market is strong as a bull, and it’s been running that way for nearly a decade. The Dow and the S&P 500 – two stock market indices that track the value of public companies – hit yet more record highs last week. With stocks being pricier than ever, dealing in cash is costly. Companies are making deals by trading stock for stock, effectively using it as currency (instead of paying the high dollar value) – like SiriusXM is doing with Pandora.
The bigger picture: Cash is getting even more expensive.
The US Federal Reserve is expected to raise interest rates for the third time this year on Wednesday (and again in December), making borrowing more expensive and saving more profitable. Companies contemplating cash deals but not striking while the iron’s hot might be forced to pay a higher price if they have to borrow money (at a higher interest rate) to make those deals in the future.