Recent analysis shows that deal activity reached $435 billion in the first quarter of 2016 in North America and Europe. This is the second highest total on record and 84% of the deals were executed by strategic buyers.
Companies with lots of cash on their balance sheets and are now willing to deploy some of it to pursue larger deals that move the needle on revenue. Traditionally, companies can use their money to invest in organic growth, dividends for shareholders, or in acquisitions. In today’s environment, M&A makes the most sense for firms who have the cash and need to quickly spur growth.
In addition, strategics are not constrained by the same investment criteria as financial buyers like private equity firms. They can afford to pay more up front since they plan to hold onto the newly acquired company for long-term growth. On the other hand, private equity buyers are typically looking for return on their investment in three to five years.
Over the past week we’ve seen a number of interesting acquisitions by strategic acquirers, including Berkshire Hathaway’s $1 billion investment in Apple. And Pfizer’s purchase of Anacor Pharmaceuticals for $5.2 billion after its $152 billion merger with Allergan fell apart last month.