As one can sense from all the news about mergers and acquisitions lately, these deals are booming again worldwide. What's new this time is that markets are rewarding the buying companies and not just those being sold. Why is this happening?
Global M&A activity since January has increased at its fastest pace in 14 years. Big transactions, in particular, are surging; there have been roughly twice as many above $10 billion in value so far this year than at this point in 2013.
What is striking about the recent activity is that the companies doing the buying are being richly rewarded by the market. Usually, the market's response to buyers is negative or, at best, tepid. (The sellers are a different story.)
In particular, as a new report by my colleagues at Citigroup Inc. shows, in the 74 "transformational" deals -- deals that are either greater than $10 billion, or $5 billion to $10 billion, and at least 40 percent of the acquirer's market capitalization -- since 2011, the buyer's stock price has appreciated by an average of 1.5 percent, relative to the market as a whole, around the announcement of the deal. (Disclosure: I am the chairman of the Financial Strategy and Solutions Group at Citi, which produced this report.)