From the New York website: The global economy saw over $3.8 trillion in mergers and acquisitions in 2015, surpassing the activity seen in 2007. The New York property market, too, had a bumper M&A year, with some of the biggest commercial firms joining forces. But are all these big deals a sign of economic health, or another indication that the market is due for a slowdown?
Major real estate mergers recently include the $100 million deal between commercial brokerages Massey Knakal Realty Services and Cushman & Wakefield, followed by DTZ’s $2 billion acquisition of Cushman; Marriott International’s $12.2 billion purchase of Starwood Hotels & Resorts Worldwide; the Blackstone Group’s $8 billion acquisition of BioMed Realty Trust, and its $6 billion purchase of Strategic Hotels & Resorts.
Another major acquisition in the works, with SL Green Realty planning to buy New York REIT for an as-yet-undisclosed price.
The numbers in these deals are impressive, but experts say they’re often a sign that companies can no longer grow organically in the existing market.
David Rosenberg, chief economist at wealth management firm Gluskin Sheff, told Bloomberg all the M&A activity is a “classic late-cycle development.”
“When companies embark on peak M&A activity, it is more often than not coinciding with a peak in the stock market and, dare I say, a peak in the business cycle,” he said.
The last big wave of mergers occurred in 2007, just before the financial crisis. The previous peak was reached just before the dot-com bubble collapsed in 2000. Years of low interest rates are part of the impetus for the current boom in deals, Jim Paulsen, chief investment strategist at Wells Capital Management, told Bloomberg.
“In a world where borrowing money is virtually free, you’re probably doing more of these deals than you should,” he said.
But not everyone sees high M&A volume as a problem. Torsen Slok, chief international economist at Deutsche Bank, told Bloomberg the surge in M&As was a sign of strength.
“Corporate America’s appetite for risk is finally beginning to thaw,” he said. Even if activity slows down next year, I think we are still two or three years away from a recession.” [Bloomberg] – Ariel Stulberg