27bn M&A deals in a day

The market for mergers and acquisitions sprung back to life on Monday after deals totalling more than $27bn were announced, with more than half of their total value paid in cash.

After months of deal inactivity, Oracle agreed to buy Sun Microsystems for $7.4bn; GlaxoSmithKline paid $3.6bn to buy Stiefel Laboratories; and PepsiCo offered $6bn in cash and stock to buy out shareholders of its two biggest bottlers.

Bankers said the deals signalled improving business confidence and market conditions for transactions, but cautioned that the market still had a long way to go before it could reach the levels of activity seen during the recent debt boom.

William Vereker, co-head of investment banking at Nomura, said: “Companies are taking advantage of an improvement in markets to execute on strategic transactions which have been in the pipeline. But confidence is still fragile and much will depend on how markets behave over the coming months before M&A volumes increase meaningfully.”

Others said it was encouraging to see deals being struck across several industry sectors. That contrasts with the first quarter which was dominated by the pharmaceuticals industry – one of the few that is relatively stable and has strong cash flows. Pharmaceutical companies have also been forced to consolidate as they come under threat from patent expiries and generic rivals.

However, the value and volume of worldwide deals so far this year remain well below the levels seen during the recent M&A and debt boom. In the year to date, worldwide M&A is down a third to $659.5bn from a high in 2007 when the value of global deals reached $1,424.3bn – the highest year to date total on record, according to Dealogic.