“They trade at a stock price multiple with high shareholder expectations to deliver extraordinary growth,” he said. “And when they look internally at their own business plans, they have doubts on delivering what their stock multiple is implying.”
That hunger for growth will continue to drive a record year in mergers, the 30-year J.P. Morgan veteran said. Led by takeovers in technology, health care and energy, U.S. companies are already on track for a record year. North American firms announced $1.35 trillion in deals through June, 67 percent higher than the first half of 2017. That has been driven by megadeals — the number of deals that are at least $10 billion surged 125 percent — and by cross-border transactions. Acquisitions between companies in different regions climbed 48 percent to $462 billion. About two-thirds of that activity was for target companies based in Europe, the Middle East and Africa, according to J.P. Morgan.
One threat is rising protectionism around the world as governments including the U.S., U.K. and the European Union take steps to scrutinize foreign investments on the basis of national security. The escalating trade dispute between China and the U.S. could also threaten deals between companies based in the two countries. Cross-border mergers make up roughly a third of the market, meaning that deals activity would decline if it was restricted by national borders, Ventresca said.
In the longer term, the mergers boom will probably pause with the onset of the next recession, which will cause companies to take less risks for growth, Ventresca said. But the next economic contraction isn’t likely until at least 2020, J.P. Morgan has said.
“As we look into next year, we still see things more supportive of M&A than dampening,” Ventresca said. “The desire to make better, stronger, more global companies remains.”
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