Recent financial woes reshaped the US economy, but big companies are making big deals again, especially in health care, technology and the media industry. Monday was a tipping point following the acquisition between two big pharmaceutical companies and then with another multi-billion dollar takeover between two oil field service companies. It’s the biggest year on the books since 2000. The conditions are ideal, with borrowing costs low and share prices rising, and because deals don’t happen unless people are feeling good, it seems that corporate leaders are optimistic with the times, with foresight on growth.
Businesses love mergers and acquisitions, but when companies spend on mergers and acquisitions, they are not spending on other things. Wage growth remains minimal and new employment numbers are barely growing. Mergers can also create repetition within a business, which can lead to job cuts. M&A’s are so attractive partly because of low cost and the easy accessibility to capital, as well as the need for consolidation in an oversaturated market. Another reason for this surge in mega-deals is because there are new changes within various industries taking place or on the verge of being redone.
The health care industry is responsible for about $423.6 billion in deals, which is the most this year. Broadband companies are gaining more negotiating power over content providers following a court ruling, which then also spiked the more recent controversial debate over net neutrality. Lastly Warren Buffet traded his stocks for $4.7 billion in Duracell. He is the ultimate mastermind of making a good deal. The deal gets the best bang for its buck, because through this savvy business deal, Buffet has avoided heavy tax burdens commonly associated with big money business transactions.
Overall it’s been a great year for Wall Street. It takes money to make money; that’s why I work with already established companies looking to buy, sell, or grow their businesses. In my award winning and best selling book, Sell Your Business For More Than It’s Worth, the most common pitfall companies face is that their financials are either not in place or all over the place. Plan your exit strategy from the get-go! It does not mean you plan to fail, but if you fail to plan the odds are more like a game of 50/50 Russian roulette. Keep a close record of what your business offers and stay up to date with the latest government tax incentives. You can better identify what a company’s value is if they have carved a specific niche with trade secrets and brand loyalty in place. Don’t work in your business. Instead, work on your business. For example, earlier this year, big drug company Valeant and investor Bill Ackman tried to take over Allergan (another drug company) with an offer valued at $54 billion. Allergan refused, wanting more. Now a different company is paying them $66 billion in cash-and-stock for the company (talk about selling their business for more than it’s worth)! And while investor Bill Ackman wasn’t willing to pay the price, it turns out Allergan will still end up paying him about $2 billion, since the man invested in the drug company before even negotiating with them. That is what I call a good business back up plan to back up your business end game strategies.