In just four days this week there were nearly $90 billion worth of merger and acquisitions announced in the healthcare sector. That puts the total M&A activity for 2014 to date at a booming $153.5 billion in healthcare alone. With companies resting on gargantuan cash piles and activist investors like Bill Ackman inventing whole new ways to play corporate matchmaker, bears have a whole new reason to be afraid of shorting this stock market.
In the attached clip Baker Ave’s Simon Baker says the deals are just getting started. “What typically happens is you see a lot more of these deals as other companies feel the need to do deals. It’s sort of self-fulfilling at the end of the day”
Beyond keeping up with the Jones’ mentality, there’s also the practical matter of finding growth in a moribund economy. With corporate giants becoming so absurdly outsized it becomes almost impossible to move the needle with organic in-house efforts. Google (GOOGL) has taken some heat for its pace of acquisitions but the company generates cash almost faster than it can spend it.
Healthcare companies need to buy growth because of their extended pipeline and patent expirations, but the same basic economic truth holds for most of industrial America. Shareholders either want the cash given back to them* in the form of dividends or buybacks, or they want to see acquisitions. Building a cash cushion is strictly passe’.
Notwithstanding the greater potential Baker is sticking to biotech for his speculative M&A investments. Something like the iShares Nasdaq Biotechnology ETF (IBB) is a decent place for Main Street investors to be putting some of their more speculative investment money.
* These activities don’t actually “return cash” to shareholders in a meaningful way
More from Breakout:
- Investment & Company Information
- Bill Ackman
- merger and acquisitions