Not only is the IPO market booming – the mergers and acquisitions market is going gangbusters as well. But could one proposed deal be a bad omen for the markets?
According to data from Dealogic, United States equity capital markets saw 687 deals valued at $167.8 billion year-to-date. That’s the highest number of deals since 1998, when 864 deals happened by this time. And in the mergers and acquisitions market, the 21 deals valued nearly $560 billion are the most to happen in the first half of a year since 2007, when 32 deals valued at $776 billion transacted over the first six months.
But there’s one new deal that may be eerily reminiscent of another one involving that company at the peak of the market: Time Warner.
America Online and Time Warner announced a deal on Jan. 10, 2000, which had upstart AOL merge with the old media institution Time Warner in a deal that valued the combined company at $350 billion. That made it the largest merger deal in history, a record that still holds. Two months to the day, the Nasdaq composite traded at its record high of 5,132.52 on March 10, 2000.
We all know what happened next to both Time Warner (at that time AOL Time Warner) and the Nasdaq.
With Rupert Murdoch’s 21st Century Fox’s proposal to acquire Time Warner – and with the deals market making some pre-bubble highs not seen since before major crashes – is the Nasdaq, which is near its highest levels since 2000, now vulnerable?
Investors shouldn’t read too much into this, according to Zachary Karabell, president of River Twice Research and head of global strategy for Envestnet.
“Unless the entire market is about Rupert Murdoch’s predilections to do whatever he’s going to do with his cash, that’s a totally specious comparison,” said Karabell, a CNBC contributor. “This deal signals the fact that Time Warner, even with all of its spinoffs, is an incredibly valuable property…. I don’t think this discussion about mergers is a sign of a market top.”
Steven Pytlar, chief equity strategist at Prime Executions, also doesn’t believe there’s a comparison between now and previous peaks.
“We really don’t think there’s any similarity between the Nasdaq today and the Nasdaq in 2000 or even in 2007,” Pytlar said. “The Nasdaq today, if we look at the chart we have, has been trending very smoothly, very constructively,[and] very healthily since 2010.”
Pytlar notes the Nasdaq composite index has been trading within two standard deviations of its mean price since 2010. “This is all very good trending developments, nothing really to worry about,” added Pytlar. “We don’t think that it’s going to tank any time soon because of M&A deals such as this.”
To see the full discussion on the Nasdaq composite index, with Karabell on the fundamentals and Pytlar on the technicals, watch the above video.
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- Time Warner
- mergers and acquisitions