What does ‘Mini-Merger Monday’ mean for the US recovery?
by Caroline Clayfield
Monday October 17 delivered a rush of M&A deals worth billions of dollars. Some claim that this could be a harbinger of a faster-than-expected recovery for the US economy, while others remain far more cautious.
During more stable economic times, Mondays were traditionally when the majority of mergers and acquisitions were announced, after weekend negotiations had taken place. Fewer announcements have been made since the start of the recession, but Monday is still slightly preferred as a day to announce deals, with a quarter of 2011’s M&As being revealed on a Monday so far.
There’s no denying some major deals took place on October 17, most notably perhaps Kinder Morgan’s takeover of El Paso for $21.1 billion. This deal results in the formation of the US’s fourth largest energy firm and the biggest pipeline operator in the country. Another notable deal that took place on “Mini-Merger Monday” was Norway’s Statoil’s buyout of Texas-based Brigham Exploration, demonstrating that energy deals are still very much at the forefront of M&A activity in the US.
Positive signs from the M&A market were coupled with good news from the manufacturing and export sectors, with output at mines, utilities and factories increasing by 0.2 per cent. Factory output looked particularly strong, having climbed for the third consecutive month.
Demand for automobiles and IT equipment in Japan, as it started to recover from the impact of March’s Tsunami and earthquake, helped to boost performance for US-based firms like Alcoa Inc. and General Motors.
The recent signing of free trade agreements with several nations, including Korea and Colombia, is another signal that the US is intent on safeguarding its recovery and taking active steps to ensure it keeps its trade options open. Some analysts have suggested that these trade agreements serve as an acknowledgment of the importance exports could have on the country’s future economic strength.
Dr. David Kelly, chief market strategist for the JP Morgan Funds, discussed these positive signs in a recent interview with Bloomberg Television. “You can’t scare America into recession right now," he stated, adding that economic data have been “quite good in the last few weeks,” and that the economy will have grown by two or three per cent in the third quarter.
Kelly's positive stance, however, does not reflect the overall sentiment among analysts in the StatesUS. The majority have offered much more cautious responses to both Mini-Merger Monday and the upturn in output. Reuters pointed out that although Monday’s M&A figures were strong, it was only the strongest day since July 14. It also asserted that both 2008 and 2010 exceeded 2011 for the average volume of deals announced on Mondays.
Bankers offered a word of warning to those coining the ‘Mini-Merger Monday’ phrase, insisting it was far too early to tell whether this flurry would lead to a general upturn internationally. Having said that, Reuters’ report was keen to point out that the US M&A market is stronger than Europe’s as its economy is recovering faster.
Francis Aquila, an M&A attorney at Sullivan & Cromwell in New York, said that the deals that took place on October 17 were typical of the kinds of M&As one can expect to see more of in 2012, stating, “These deals are surprising only in their timing. Strategic buyers, particularly in the energy sector, are looking for deals that provide significant synergies with the opportunity to grow revenues.”
Mining giant Rio Tinto also made a major announcement that Monday. Its plan to sell $8 billion worth of assets in six countries will no doubt be seen as a welcome sign of things to come.