2006 Could Be A Record Year For Deals

The surge of mergers and acquisitions in the channel is not surprising; it is part of a larger wave of mergers and acquisitions that is sweeping the U.S. economy.

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After a pause following Hurricane Katrina, mergers & acquisitions revved up toward the end of last year. For all of 2005, M&A activity reached a value of $1.14 trillion in the United States, up 28 percent from the previous year and accounting for 40 percent of the worldwide total of $2.86 trillion.

The growth of mergers & acquisitions in the United States continues unabated in 2006, touching many sectors of the economy, according to information from data provider Dealogic, London.

This phenomenon is offering solution providers end-to-end opportunities to boost sales, according to Pete Busam, COO of Decisive Business Systems, a solution provider in Pennsauken, N.J.

"Pre-merger, you advise the buyer as to what systems and infrastructure are worth keeping, because that affects what the buyer pays for the company they are acquiring," Busam said. "Once the deal is closed, your role turns toward recommendations and installation of new products, retrofitting existing systems and service after the sale.

Some examples of the explosion in M&A activity include:

• In media and information industries, the number of deals in the first half of this year totaled 315, worth $37 billion. This was up 12.5 percent and 33.5 percent respectively from the same period in 2005.

• Metals and steel industries saw stronger gains, with 475 deals so far this year, up 19 percent from 398 in the same period last year. These deals were valued at $71.7 billion, nearly triple the 2005 figure of $24.3 billion.

• In machinery, there have been 499 deals so far this year, up a whopping 44 percent from 346 in the same period in 2005. The value of these deals came in at $24.8 billion, double the 2005 value of $14.2 billion.

A number of factors are driving the rapid growth of mergers and acquisitions:

• Corporations are flush with record amounts of cash and are using it to expand their business operations.

• High prices and shortages of raw materials are pushing industrial companies buy suppliers to ensure a steady flow and limit price fluctuations.

• Historically low interest rates (despite the recent spate of increases) are making M&A deals economically feasible for the companies doing the buying.

• Hedge funds (lightly regulated, speculative funds that manage investments for wealthy individuals and institutions) are moving into equity markets in a big way, using their power as major shareholders to force sales or mergers of companies to unlock shareholder value not being reflected in stock prices.

In CRN's, view, these factors are not likely to change significantly over the rest of the year. If M&A activity in the United States stays at its current pace, it is on target to set a new record, surpassing the $1.525 trillion figure set in 2000, at the peak of the technology stock market bubble.