“We’ve seen M&A a upticking over the past three quarters,” says John Bender, a consultant who oversaw the $19 billion HP-Compaq deal in 2002. “The AT&T-T-Mobile deal is a good bellwether for optimism.”
The deal is the largest since the beginning of the financial crisis. It will likely inspire more huge deals, says Charles Kane, an adjunct professor of international finance at the Sloan School of Management at the Massachusetts Institute of Technology in Cambridge, Mass. “I think this will trigger more M&A in the [telecommunications] space. [Competitors] may try to expand their business to answer the first shot.”
Because telecommunications and technology are so interdependent, particularly since the advent of the smartphone, the AT&T-T-Mobile deal may trigger deals in technology sectors, Mr. Kane says. It may inspire other mergers and acquisitions in other industries, too.
Since 2008 and 2009, companies have been hunkering down and hoarding cash. But in the past year, that’s started to change. The dollar amount of merger and acquisition deals rose 14.2 percent in 2010, according to Thomson Reuters data. Companies now have more confidence in the market, and they’re more willing to use their cash to expand.
“There’s still a lot of cash on the sidelines; there’s going to be a lot of demand by shareholders to use that cash more efficiently,” Kane says.
With generally low interest rates, companies would do better to use their cash for strategic planning than to sit on it. And participating in a merger or acquisition isn’t as risky as it used to be, simply because companies have learned from each other's mistakes, Kane says.
Many of the mergers and acquisitions in the last year have been with publicly traded companies. The private sector generally lags behind about six months, so private mergers and acquisitions with likely start to pick up soon, says Mr. Bender.
“I think we’re going to continue to see public and private sectors ramp their M&A activity over time,” says Bender.