August’s M&A heat may not bring Wall Street rain

August 23, 2010
M&A

Bankers must be thankful for the surprisingly hot August M&A market. The prospect of more cash-rich firms joining this month’s surprising deal boom is enough to forget the beach. This past week has already been the best in any August since 2006, racking up $90 billion in deal flow. And at almost $200 billion so far, this month could end up beating the record $275 billion in August 1999, according to Thomson Reuters. But the summer scorcher may not lead to more rain on Wall Street.

Even the busiest of Augusts don’t stack up against the rest of the year: the 1999 showing was still almost $100 billion off the 10th-largest month on record, March 2000. And it’s barely more than half the biggest month ever, the $524 billion of deals announced in May 2007.

All the cash stored up is making bankers’ temperatures rise. The 1,000 largest global companies are sitting on almost $3 trillion of it, and the hope is clearly that many of them will follow BHP and Intel’s lead by splashing out on acquisitions. But the continuing economic uncertainty could just as easily persuade many corporate boards to hoard their war chests.

What’s more, previous August heat waves have presaged an encroaching cold spell. August 2006, for example, marked the sweltering days of the leveraged buyout boom, with even Ford Motor a rumored target, before the market turned wintry a few months later. And the best August on record in 1999 came just months before the dotcom bubble burst and a recession set in.

That doesn’t mean history will repeat itself. But it should serve as a sufficient reminder to bankers that the August heat can sometimes cause hallucinations.

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