Global M&A activity hit $484.5 billion for January and February, up 33% compared to last year.
“Watching companies get acquired or become acquirers is one of my favorite aspects of small-cap investing,” says portfolio manager Greg Wendt “It’s fascinating to track small companies and see which ones make it to a much bigger scale.”
M&A is not just a big deal in small cap. It can impact companies across equity and bond markets. With that in mind, Wendt and a few other Capital Group portfolio managers shared their views on 5 key questions about the M&A boom:
1. What’s fueling the rise of M&A?
“Companies have come out of the shell shock of the first half of 2020 and are now more confident about the future,” Wendt says. Many have strong balance sheets and consider M&A as a growth strategy.
Companies are also sitting on record amounts of cash, says Scott Sykes, a fixed income portfolio manager. Some industries such as cruise lines and hotel chains raised money to stay afloat through the pandemic. Others — after an initial dash for cash in case of a prolonged downturn — raised additional funds to take advantage of low interest rates.
Many investors expect companies to buy back stock and debt, put funds toward acquisitions, or do a combination of all three, Sykes notes.