By: Mike Genna
The last few quarters of 2018 were exciting due to the sheer volume of consolidation U.S industries experienced. According to FactSet, the aggregate deal value of merger and acquisition (M&A) activity for May (excluding AT&T and Disney deals) amounts to $275 billion.
This is the highest aggregate deal value since an all time high in December of 2017, sitting at $245 billion. Companies aren’t being bought for cheap, either. The median price-to-earnings ratio of companies acquired is 25x, coupled with the median premium of 27 percent. These make a huge impact, whether you’re using active trader using online brokerage or monitoring your index funds.
In the Media
As we watched Justice Richard J. Leon give the stamp of approval on AT&T’s $85 billion Time Warner Acquisition, every other industry mogul wished to capitalize on their market share. The ruling, criticized by many as a monopolistic, gives AT&T an opportunity to produce original content and compete with Disney, Netflix, and Amazon. But AT&T is still far from stealing any of Disney’s 26 percent market share.
Last week’s M&A mania got even more exciting. Disney’s acquired of 21st Century Fox for $71.3 billion. The bid topped Comcast’s all-cash offer of nearly $65 billion. Disney’s offer was comprised of about $53 billion in stock and nearly $19 billion in cash. The higher offer welcomes advantages like as a healthier balance sheet, growing revenue streams, and higher chances of regulatory approval, if challenged.
Skyrocketing drug prices have seen the front pages of many news publications and have received harsh mass criticisms.
Regulators still have yet to challenge the $69 billion takeover proposal of Aetna by CVS Health. Although CVS CEO Larry J. Merlo says he is confident that the deal will close in the second half of the year. The move was made in an effort to defend the health care sector over disruptive technology companies like Amazon, who now have a license to sell pharmaceutical drugs in nine different states.
Ideally, Aetna’s assets and research and development efforts would help the sector produce new, more efficient drugs at lower prices. Critics of the purchase say that the company has never cared about the public and seeks to turn itself into a monopoly with its combined 33 percent market share. The American Medical Association has expressed concern, claiming that the creation of “another healthcare giant gives will inevitably increase drug prices and have too much control over seniors’ Medicare drug plans.”
Another BIG Buy
Amazon closed an acquisition for Whole Foods in the latter half of 2017 for $13.7 billion. The all cash deal paved the way for Amazon to infiltrate the grocery store industry. It may sound far-fetched, but a Deloitte consultant suggests Amazon will surpass Kroger in grocery sales in 2027 and Walmart in 2035 with the world’s first online marketplace for food. The same consultant predicted Amazon would buy Whole Foods a year prior to the acquisition.
It’s hard to believe that, with Amazon’s massive investment, that Amazon wouldn’t desire to scale Whole Foods. This is especially considering the launch of Amazon Go, a cashier-less grocery store in Seattle, and Amazon’s recent announcement of plans to expand the service.