The year 2014 has started out as a big deal for companies that have been a part of mergers and acquisitions, according to financial services consultant Bradley Reifler. The first quarter of this year has been profitable, as many companies have sought to buy up the competition. Quite a few of the acquisitions have involved American businesses either buying or selling to competitors overseas. Investors have an opportunity to profit from these mergers and acquisitions. However, it is essential for top investors to be aware of the best companies for their clients.
At the beginning of 2014 Comcast sought to buy Time Warner Cable for $45 billion, Actavis is currently negotiating to buy Forest Laboratories for $25 billion, and Facebook bought WhatsApp for $19 billion. In prior years, transactions of this magnitude were not common because of the uncertainty of the federal budget, the debt ceiling and the outcome of the Affordable Care Act. Nevertheless, financial service professionals expect that more of these multi-billion dollar mergers will continue as the economy recovers and becomes more stabilized, reported the San Diego Union-Tribune.
Dealogic reported that deals consisting of mergers and acquisitions totaled $336.13 billion in January and February, totaling 1,550 transactions. The amount shows an increase of 31 percent from $256.21 billion from last year during the same period. Investors are finding ways for their clients to profit from these acquisitions and avoid losing money on less profitable investment opportunities. Bradley Reifler notes that if certain companies are buying up their competition, a potential investor will want to stay clear of companies that appear weaker.
Corporations are seeking creative ways to boost their sales and acquire a part of their competition’s customer base. Businesses such as Deloitte’s M&A are also looking for opportunities to increase their product lines and expand their geographic reach.
Suntory Holdings, a Japanese liquor business, is currently negotiating to buy Beam Inc., which makes Jim Bean and Maker’s Mark, for $14 billion. Suntory’s goal is to increase its global reach. Many businesses are aware that the more locations in which they can place their product, the higher their visibility and the better chance for sales, reported Forbes.
Investors have started strategizing and putting together investment plans that will benefit their clients and many companies have hoarded cash because of the financial crisis the economy has presented these last few years. Amounts of money stashed away amounted to $1.6 trillion, according to the Federal Reserve. Investors have demanded that companies seek ways to profit from the money set aside so they can earn a return on their investment. It appears that 2014 has started with companies using these monies to increase their market share and eliminate their competition.
Comcast will increase their customer base by around 30 million customers with the purchase of Time Warner. The business transaction will not only raise Comcast’s business profile but will also take out a major competitor. However, this isn’t the first cable company merger of this magnitude and there’s a chance it could end unsuccessfully. “The AOL/Time Warner merger gave companies with overpriced currency the ability to buy companies with real cash flow and earnings,” says Bradley Reifler. “This is being done again and unfortunately will end the same way.”
The Facebook acquisition of WhatsApp has provided the major social media company to own one of the fastest growing message services businesses in emerging markets like Europe. Mark Zuckerberg, CEO of Facebook, expects WhatsApp to increase from their current 400 million users to 1 billion in the near future, Forbes reported.
Google jumped at the opportunity to buy the drone maker Titan Aerospace, which Facebook also tried to purchase. The solar-powered drone-making company will increase wireless Internet access delivery into remote parts of the world. The amount of the acquisition has not been released but there is speculation that the numbers are in the billions, reported CNBC.
During the first quarter of 2014, Verint Systems also acquired the software business KANA Software, a cloud-based customer service company, for $514 million. Additionally, Microsoft acquired Parature, a competitor of Kana Software, for $100 million.
Not all mergers end happily with a profitable bottom line. For most investors, the mergers provide a much-needed confidence that their companies will become more profitable. However, the risks involved in these transactions should not be overlooked, as Bradley Reifler noted.
Tomica Bonner contributed to this article.