Mega mergers are back. Will it last?

• Mars, Verizon, and now probably Qualcomm have all been looking for big acquisition targets.
• LSEG data shows transactions worth more than $1 billion globally are up 22% year-over-year.
• Wall Street executives were upbeat about the growing number of deals.

The deal process hasn’t fully recovered yet, but blockbuster deals involving high-profile corporations and price tags exceeding billions of dollars are making a comeback.

Over the past few months, we’ve seen candy king Mars gobble up Kellanova, maker of Cheez-It and Pringles, for nearly $36 billion, including debt, and media giant Paramount Global, owner of CBS and Nickelodeon, finally agree on a multibillion-dollar merger deal . Meanwhile, telecom giant Verizon Communications is buying Frontier Communications for $20 billion, including debt.

Even bigger megadeals could be on the horizon: Qualcomm is said to be stalking its chip rival Intel, which has a market value of nearly $104 billion.

Preliminary data from LSEG shows that there have been 425 mergers worth more than $1 billion globally this year, an increase of 24% compared to 2023. There have been 25 “whale” deals so far this year – transactions worth over $10 billion, an increase of 39% compared to the previous period.

Billion-dollar blockbusters are emerging, even though the overall outlook isn’t very encouraging. The U.S. elections create uncertainty about regulatory and economic policy for corporate executives. Wars in Ukraine and the Middle East pose additional risks.

While a surge in megadeals has helped push dollar deal value globally this year by 17% to $2.3 trillion, the number of announced mergers is down 21% from a year earlier, according to LSEG.

So what has brought to life what Wall Street calls “animal spirits,” at least for larger purposes?

Lower interest rates certainly help. Lower rates lower borrowing costs.

Wall Street executives also pointed to pent-up demand among companies as the pandemic and its aftermath, along with higher inflation and supply chain disruptions, delayed plans for growth through mergers.

David Solomon, chief executive of Goldman Sachs, a leading global mergers and acquisitions advisor, referred to “backlogged deals” during the company’s second-quarter earnings announcement this summer.

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“From what we see, we are at the beginning of a recovery phase in capital markets and mergers and acquisitions,” Solomon said. He noted that merger activity continues to be well below the 10-year average. “I think we’re another 20% away from reaching the 10-year average,” he said, as transcribed by AlphaSense.

Other Wall Street bank executives, such as Morgan Stanley’s Ted Pick and Lazard’s Peter Orszag, were upbeat about the M&A pipeline.

A recent survey by KPMG of more than 1,300 CEOs of large companies around the world supports the view that corporations are becoming more confident in making deals. About 49% of U.S. CEOs surveyed said they were likely to make an acquisition in the next three years.

Shareholder activists are also encouraging deals as companies look to simplify and change their focus, Bloomberg reports. It said its data showed spinoffs and asset sales of at least $250 billion this year.

“Markets and activists care about the integrity of companies,” Hernan Cristerna, JPMorgan’s global president of mergers and acquisitions, told Bloomberg. “Executives want to pre-empt demands by divesting from non-core assets that could fundamentally harm the performance of their core businesses or divert their attention.”