The Secret To Why So Many Buyouts Are Happening In The Stock Market
The M&A action is insane right now. Almost daily there is a new deal announced, with one company buying another. Today we saw Oracle Corporation (NYSE:ORCL) buying NetSuite Inc (NYSE:N) in a deal worth approximately $9.3 billion. So why are all these buyouts coming over the last month or so? What is going on? Is there that much value in these names or is there something amiss.
Below are the the two main reasons why there are so many buyouts going on.
1. Companies are having to buy growth. With an economy that is growing at under 3% per year, former mega growth companies find themselves with earnings that have stalled or declined. They realize that things are not going to change going forward and must purchase growth. They are willing to pay sky high prices to keep shareholders happy.
2. Interest rates are at historic lows. This means money is cheap. A big company can borrow money for nothing and buy a company. They do not have to worry about paying for the entire thing for years. The CEO’s are basically thinking that its a free buy as they will not be at the helm when the bill comes due.
These two reasons make for a great M&A environment. However, it does speak to a bigger issue in the stock market. Lack of growth. Buying growth is a short term fix, not a long term solution.
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