Cheap money spurred mergers and acquisitions of companies worth a total of $1.2 trillion

The abundance of cheap money in the global financial system has triggered the largest surge in mega mergers and acquisitions since the global financial crisis of 2008, with their value by the end of September being nearly 90 percent higher than in the same period last year.

From January to September this year, 45 mergers and acquisitions of companies, each valued at over $10 billion, have already been agreed upon worldwide, according to Dealogic data. The total value of mergers reached $1.2 trillion, an increase of 89 percent compared to the same period last year. The latest example is last week’s announcement by American pharmaceutical giant Pfizer, the maker of Viagra, that it plans to acquire Allergan, the maker of Botox, whose market value exceeds $110 billion.

A new wave of large mergers began in the United States and crossed into Europe in 2014, notes Tangi Le Liboux from consulting firm Aurel BGC.

– There is a huge amount of cash available, interest rates are extremely low, and loans can be obtained on good terms, says Le Liboux.

– Inorganic growth can be an easy option, but it can also involve risks for large structures, he warns. It is difficult to “merge cultures,” adds Le Liboux, recalling the merger of Nokia and Alcatel-Lucent.

This assessment is confirmed by the merger of AOL and Time Warner in the first decade of the 21st century, agreed upon during the internet bubble and later canceled. It may be the worst merger in corporate history, partly due to the cultural clash between the two companies that could not be successfully resolved.

Cheap money is nevertheless attractive to directors who want to ‘buy’ growth instead of creating it themselves, especially during a period of moderate economic growth.

– Due to low inflation, companies find it very difficult to achieve organic growth, notes Philip Whitchelo from Intralinks, a company specializing in business networks and tracking merger and acquisition activities. Near-zero inflation can pressure revenues.

– Large companies rely on acquisitions and geographical expansion to achieve growth.

In the beer production sector, Anheuser-Busch InBev, a giant whose portfolio includes brands like Beck’s, Budweiser, and Stella Artois, is preparing to acquire competitor SABMiller in a transaction worth over $120 billion when debt is included. InBev’s offer is motivated, among other things, by access to the fastest-growing markets in the world, including those in Africa where SABMiller has been present since the gold rush in Johannesburg in the second half of the 19th century.

After a slowdown in growth in emerging markets, the wave of mergers has turned back towards developed economies, notes Herve Jauffret from Ernst and Young, who has just completed research on this trend.

– Investors are once again showing appetite for mature economies – the USA, Germany, England.

In France, the king of mergers is billionaire Patrick Drahi, founder of the telecommunications group Altice, who has spent as much as $30 billion in a few months and ultimately acquired the American cable operator Suddenlink in May, and Cablevision in September.

Money is not expensive, and it is the right time for such transactions. The companies behind them have experience in cost reduction and restructuring but must be cautious as the market begins to notice the limits of borrowing, warns Fabien Laurenceau from the French brokerage firm Aurel BGC.

Despite the risks, the wave of large mergers seems likely to continue.

– It appears that 2016 will shape a moderate but good start for global merger and acquisition activities after, as predicted, a record 2015, Intralinks states in its report, estimating that the number of such transactions will increase by 8 percent this year compared to last year and exceed levels before the global financial crisis.