BuzzFeed News

Reporting To You

business

A Huge Year For M&A, But All Good Things Must Come To An End

This years' staggering surge in mergers and acquisitions, with activist investors leading the charge, faces the threat of quantitative easing coming to an end. Will the deal pipeline slow as a result?

Posted on November 18, 2014, at 4:24 p.m. ET

The pharmaceutical giant Actavis just bought Botox-maker Allergan in a $66 billion deal.
Shannon Stapleton / Reuters

The pharmaceutical giant Actavis just bought Botox-maker Allergan in a $66 billion deal.

We've officially reached boom status when it comes to merger and acquisition activity in 2014. Globally, M&A deals just passed the $3 trillion mark, making it the highest year-to-date total since 2007, according to data from DealLogic.

And while there have been a number of deals throughout the year that have contributed to that staggering number, two recent mergers tipped the scales, with Halliburton's $34.6 billion acquisition of Baker Hughes and the (somewhat) activist-led sale of Botox maker Allergan to pharmaceutical giant Actavis on Monday for $66 billion—the biggest deal of the year.

Activist investors have been a major force when it comes to M&A this year. According to Josh Black of activist investing database Activist Insight, activist investors contributed to a 65% increase in proactive M&A campaigns, or those that push for a deal to go through as opposed to those that try to fend one off or acquire a third party as a defensive strategy.

"The M&A activism that we've seen has been more proactive," Black told BuzzFeed News. "I think that activists have caught onto the fact that this is a good market for M&A. When there are good conditions for a certain kind of campaign, they tend to increase in numbers a lot of the M&A that does happen happens when an activist pushes for an change."

Some of the year's biggest deals include Time Warner Cable and Comcast, AT&T and DirectTV, Burger King and Tim Hortons, as well as the activist hedge fund Eminence Capital-led Jos. A. Bank and Men's Wearhouse merger. And the activist hedge fund Starboard Value is currently pushing for another whale of a deal in combining Yahoo and AOL.

Black attributes the surge to market conditions, which have largely been favorable this year. And the market could grow even larger if more private equity buyers step in, as this year has actually seen a dearth of such buyers despite the rapid uptick in deals.

"Liquidity is always a macro factor," Black said. "There's plenty of strategic buyers at the moment, if there were more private equity buyers, you would see more activity as well and lower interest rates."

Which brings us to a potential hurdle growth continuing into next year: the end of quantitative easing last month by the Federal Reserve. The policy had kept interest rates low and helped stimulate economic growth which drove the stock market up throughout last year. But according to Ann Owen, an economics professor at Hamilton College and expert on Fed policy, the end of QE isn't as big a deal as the Fed's potential to raise its Fed Funds rate in the middle of next year.

"Because the end of quantitative easing was fairly widely expected, it had very little impact on interest rates," Owen said. "Going forward, the biggest impact on interest rates going higher depends on the fed funds rate and when it will raise. It's expected in mid-2015, and I don't think people are expecting it much earlier than that, and you will probably see a jump. That is the big thing that's on the horizon for 2015."

ADVERTISEMENT