If you're an active investor who monitors investment screens with great frequency, then you have ample reason to look forward to Monday mornings again. This is when major deals are often announced, and if history is any guide, then we may be on the cusp of solid upturn in deal-making activity.
Just this past week, Netlogic (Nasdaq: NETL) and Global Industries (Nasdaq: GLBL) were snapped up for a collective $5 billion, on -- you guessed it -- Monday morning (Sept. 12).
"Merger Mondays" could be a key theme in coming quarters, helping give the broader stock market -- as well as savvy investors -- a desperately-needed boost. Here's why…
It's no secret the economy has slowed to a crawl. This slowdown is hitting all kinds of companies. For instance, Cisco Systems (Nasdaq: CSCO) is expected to boost sales only 5% in fiscal (July) 2012. This is the same projected growth rate for Procter & Gamble (NYSE: PG) and Macy's (NYSE: M). And for mighty GE (NYSE: GE), the projected figure is even worse -- only 2%. In fact, analysts expect very few large companies will post major sales gains in 2012 -- at least on an organic basis.
Yet it's crucial to remember that many top executives have a large part of their compensation tied up in stock options. To get rich, they need to find ways to boost sales (and profits). And if internal growth at their companies is lacking, then deal-making can help bring a boost. With so many companies sitting on so much cash right now, and this cash earning very little interest, the itch to make deals is quite strong.
Make no mistake, hundreds of companies are probably analyzing potential deals right now. If the stars align, then a number of deals could come to fruition. Yet for this to happen, companies need a stable stock market first. Who wants to make an offer for a target acquisition when the target may fall even further in price in coming weeks? The economy also needs to stay at least at a level of zero growth. Negative growth (i.e. during a recession) has a way of turning promising acquisitions into botched deals, because hoped-for synergies and margin gains may never materialize.
The good news is the market may have begun to stabilize -- the S&P 500 rose or fell at least 2% on 10 occasions in August, but has done so only three times so far in September.