The markets are responding to three huge merger deals today, with LVMH (MC.PA) buying Tiffany (TIF) for $16.2 billion, Charles Schwab (SCHW) buying TD Ameritrade (AMTD) for $26 billion, and Viagogo buying eBay’s (EBAY) Stubhub business for $4.05 billion.
“After a dry spell over the last couple of years, 2019 has really been the year of the deal,” Amanda Agati, chief investment strategist at PNC Financial, told Yahoo Finance’s The First Trade.
“I think it’s a sign of the times,” Agati said. “We’re in the late innings of the cycle. Companies have been very hesitant to push for a cap-ex revival given all the uncertainty swirling around in the macro and in the headlines. So, they’re really wrestling with this buy-versus-build decision.”
It’s just the latest set of mega-mergers to rock Wall Street in 2019. Tracking company Mergermarket says there was $2.49 trillion worth of M&A deals through the end of Q3. (Global M&A totaled $2.8 trillion in Q1-Q3 of 2018, and $2.23 trillion in Q1-Q3 of 2017, according to Mergermarket.)
“When you don’t have organic growth because of overall economic activity on a global basis being subdued, especially because of trade issues, inorganic growth is what you focus on,” Krishna Memani, vice chairman of investments at Invesco, said.
That means buying up rivals to create a stronger single company that can better compete.
“Trade war issues keep growth under control, and capital expenditures under control, so companies look for inorganic growth instead of organic growth in that environment,” Memani said.
The $26 billion Schwab, TD Ameritrade merger is a perfect example of that, Memani said. He expects a “bloodbath” in terms of job cuts because the two operations have so many overlaps.
“These businesses are not growing at a fast enough clip where, without synergies, you can justify paying the premium that you're doing,” he said. “So effectively, [job cuts have] to be part of the equation.”
The financial industry “is really in a transformative place,” Agati said. “Companies are really trying to figure out what is the right path forward.”