A combination of ultra-low interest rates and increasing confidence in the economy has encouraged firms to buy up rivals.
And firms which see little room for organic growth are using cheap money to buy up rivals and show shareholders they can still achieve healthy growth.
Deals underway right now include Australian group Slater and Gordon’s AU$1.2bn (£625m) acquisition of UK-based Quindell’s professional services division; China National Chemical Corp’s purchase of Pirelli tyres, part of a €7.3bn deal (£5.3bn); and Swiss business Dufry’s €1.3bn acquisition of a stake in World Duty Free.
Along with the $40bn Heinz-Kraft mega-merger last week, the activity shows the growing potential for huge deals, in another sign that market conditions are able to support such giant combinations.
So far this year, $583bn (£392bn) of deals have been announced worldwide, up 3.5 per cent on the $563bn in the first quarter of 2014.
China is a particularly big buyer – its firms spent $46.8bn buying foreign firms last year, 10-times the level a decade ago. Analysts at Deloitte, who crunched the numbers, expect to see that figure keep on growing.
“For the first time since 2010, we are expecting to see four consecutive quarters of growth in deal volume,” said Deloitte’s Iain Macmillan.
“The factors driving M&A include the decline in oil prices, appreciation of the dollar and pressure from investors to focus on top-line growth.”
A tide of Asian funds is helping push up valuations in Europe, as eager Chinese buyers seek to diversify their investments. “European mergers and acquisitions are up 10 per cent on the year so far in deal value, but in Asia it is up 40 per cent, coming close to an all-time high,” Severin Brizay, UBS’ head of M&A in Europe, the Middle East and Africa (EMEA), told City A.M. “A lot of that is outbound M&A, with China and Japan being particularly acquisitive abroad. And I’m confident the cycle still has some way to go.”
The knock on effect in London is a wave of hiring.
Recruiter Astbury Marsden today reported a 24 per cent spike in new jobs in March, led by M&A activity. In particular, it notes foreign firms have spent $48bn so far this year buying UK businesses.
It saw 3,030 new jobs created in March, up from 2,430 in the same month of 2014.
Surging investment in the technology sectors has driven some of the M&A activity, pushing banks to hire staff to cope with the boom – but those financial tech firms are also poaching staff from the banks.
“Job growth in the City was strong in March, with a surge of M&A activity reflecting a growing appetite among overseas investors for UK businesses,” said Astbury Marsden’s Adam Jackson.
“The banks are also stepping up their hiring of technology staff as they either look to replace staff poached by fintech businesses or battle to keep and support their best technology talent as they build up their own financial technology capabilities.”