Has any research been done comparing the level of M&A activity and the phase the stockmarket is in? I have this rather unverified theory that high level of M&A takes place close to market tops, how close is the question. Back in 97-98 there were a lot of huge deals done and the market still ran much much higher . Could 2 years plus of big M&A activity be a sign the market is running out of steam ?
There is a theory with strong evidence to support it that stock for stock deals erode shareholder value in most cases. Stock for stock mergers across a broad range of industries could suggest a market top. For cash M&A the opposite may be true. Managers may hold a belief that their stock is undervalued and use cash to purchase, in their opinion, undervalued companies. Hope that helps.
Confirmation of the Obvious---------------M&A activity rises and falls with the general market. Gargantuan-sized deals tend to occur at market tops. They make for better sell-signals. Larger companies take more time to muster the confidence to do huge mergers with other companies.
Tops and end of bottoms. High priced paper gives the currency to do deals at the top and as incremental return on capital decreases companies start to look for economies of scale and making up for organic growth shortfalls through growth through acquisition. At the turning point from a low you typically see e.g local subsidiaries being tendered for by Multinationals who know how the cycle unfolds in their business and thus take advantage of their superior knowledge of the value of the business vs the broad markets valuation perception and investment horizons. You might also see a rash of aquisition activity in industries whose growth goes from linear to exponential once a GDP per capita or other threshold is hit.