M&A Activity Brings Hope for Companies

One of the things that happens during a recession is that companies start hoarding cash. Preserving capital becomes important as cash inflows slow on reduced consumer spending. As a result, during a recession, merger and acquisition activity decreases. However, now that there are signs that the economy is starting to recover, it could be that M&A activity could pick up. After all, there is a bunch of cash sitting around at many companies.

Working corporate deals

Part of corporate finance is wheeling and dealing. Many companies hope to gain more market share and increase their cash flow by acquiring competitors or working out partnerships and other deals with related businesses. Some of the types of companies that might see this type of activity in the coming months include, according to MarketWatch, the following:

• Auto-parts suppliers
• Entertainment companies
• Retailers
• Manufacturers
• Biotech companies
• Energy companies
• Pharmaceutical companies
• Large software companies looking for fast-growing small software companies

The idea, of course, is that companies that are in a good position can enjoy the economies of scale, while the companies that have been struggling through this recession are forced to sell out to other companies. There are some great deals out there.

Eventually, a pick up in M&A activity can benefit the stock market as well. Stocks generally like mergers and acquisitions, even though today’s merger news hasn’t been terribly helpful. In the end, though, a pick up in activity usually means that the recession is on its way toward ending, and increased confidence in this area could help an economy that is at least partially based on the perception that things are improving.

Image source: Aidan Jones via Flickr