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M&As Rise 73% Vs. 2013 As Deal Makers Think Big

Driven by the health care and media industries, 2014 has so far been the strongest year for mergers and acquisitions since the dawn of the financial crisis in 2007.

Big deals globally totaled $1.6 trillion in 2014 through June 16, up 73% from last year. The past few days have been a microcosm of rising M&A.

Level 3 Communications (LVLT) Monday agreed to buy TW Telecom for $5.7 billion. Also Monday, flash-memory maker SanDisk (SNDK) said it would buy flash developer Fusion-io (FIO) for $1.1 billion, and Vodafone (VOD) said it would buy Cobra Automotive Technologies for $197.5 million.

On Sunday, Medtronic (MDT) said it will buy Covidien (COV) for $42.9 billion in cash and stock and will be based for tax purposes in Ireland to take advantage of that nation's 12.5% corporate tax rate. Additionally on Sunday, Lithia Motors (LAD) said that it is set to create the fifth-biggest car dealership chain in the U.S. by paying $340 million in cash and $22.5 million in stock to acquire DCH Auto Group.

Priceline.com (PCLN) on Friday announced the purchase of OpenTable (OPEN) for $2.6 billion.

In terms of the value of all big deals, each industry tracked by Thomson Reuters has grown from a year ago, with health care and media each seeing triple-digit percentage increases.

Health care has transacted $263.8 billion worth of deals so far in 2014, making up 16.5% of all M&A activity, up 216% from a year ago. Media, with $216.4 billion in deals helped by the $45 billion merger of Comcast (CMCSA) and Time Warner Cable (TWC), constituted 13.6% of deals so far, up 312% from a year ago.

Energy and financials were nearly equal, each making up a little more than 11% of M&A.

Less has been more, however, as the number of deals is down slightly — 3.2% — from last year to 16,175. But bigger has been better too: Megadeals, whose value exceeds $5 billion each, nearly tripled in number from a year ago, to 45 from 17.

M&A has taken on more international flavor, with cross-border deals making up 37% of the total, vs. 28% last year.

This year is still off 25% from the $2.1 trillion in deals at this point in 2007.

The boost in the numbers can be attributed partly to the healing of bruises from the punishing recession of 2007-'09 and the skittishness that companies felt in its wake.

"The credit is available and cheap," said Richard Patterson, a senior director at S&P Capital IQ, who was describing the "four legs of the stool" propping up 2014's strong M&A activity. "You have cash on the balance sheet. You have confidence.

Finally, activist investors such as Carl Icahn are lighting fires under some companies to either break up, spin off subsidiaries or buy up other companies, he said.

"Nothing particularly is special other than ... a lack of deal-making for the last five years," said Matthew Toole, director of deals intelligence at Thomson Reuters. "It's pretty broad-based.

Taking advantage of the bull market, now in its sixth year, and shaking off the skittishness caused by the market crash of 2008, stock increasingly is being made a part of deals.

"That goes nicely with the stock market highs we're seeing week after week," Toole said. "You can come in with a very strong stock as your currency.

Despite the handshakes and slapping of Brooks Brotherly backs, hostile acquisitions have contributed to the highest proportion of M&A since 2007.

In the battle of French telecoms, Numericable won its bid for SFR. Pfizer's (PFE) hostile bid for AstraZeneca (AZN) was unsuccessful, but not before rattling Britain's Parliament. Valeant Pharmaceuticals' (VRX) hostile $53 billion bid for Allergan (AGN) led to harsh words from Allergan and the French government.

Deal-making is expected to grow for the rest of this year as well as into next before the inevitable plateau, according to Patterson of S&P Capital IQ.

"Investors should be wary trying to chase deals," he said. "The rumors sometimes don't make the reality."