The New York Stock Exchange ended 2009 up nearly 30% over 2008. That makes a lot of individuals feel better about the economy because they “feel” wealthier.
Companies are no different. With an up market we expect M&A activity to increase, generally as a laggard to the equities market. Think about it: a company’s stock price is up so they can use the stock as currency to buy other companies or as currency to obtain debt to acquire companies. Either way, we should expect an uptick in 2010 M&A activity to follow the strong performance of the equities markets in 2009.
Warren Buffett commented on this topic recently when he skewered Kraft for its stock offer to Cadbury saying:
The share-issuance proposal, if enacted, will give Kraft a blank check allowing it to change its offer to Cadbury
Watch for more public companies to make acquisition announcements, especially after they report 2009 earnings. This could be a good time to think about divesting!