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Mergers and Acquisitions Mask Troubles in the US Economy

Strategic Insights

— 2 min read

A surge in mergers and acquisitions has flooded the headlines, but beneath the surface, the numbers suggest that companies are struggling to find growth in the market. Revenue growth at US companies has declined every year for the last five years, to about 5 percent now from 11.2 percent in 2010, according to a report by Citigroup. In many cases, companies are pursuing takeovers not because they are excited about a growing economy, but because their own growth prospects have waned.

Key Takeaways:

  • Revenue growth at US companies has declined every year for the last five years, to about 5 percent now from 11.2 percent in 2010, according to a report by Citigroup.
  • Many companies are pursuing takeovers not because they are excited about a growing economy, but because their own growth prospects have waned.
  • Top-line growth for most American companies has been particularly hard to come by in recent years, and to the extent that businesses have been able to continue to increase their profits, it has been largely a function of cutting costs.
  • The Citigroup report states that "Strategic actions, such as M.&A. and asset restructurings, have become a key priority to generate growth in the current environment."
  • Capital expenditures have decelerated every year since 2011, reaching 4.6 percent in 2013, and are forecasted to be below 2 percent globally over the next 12 months.
  • Even among the current crop of deals, there is little expectation of huge jumps in revenue growth.
  • Companies may be turning to deals as buying back shares, another method for managing earnings per share, runs its course.
  • David J. Kostin, the chief US equity strategist at Goldman Sachs, recommends that companies use equity to pay for deals instead of pursuing share buybacks.

Statistics:

  • $775.8 billion: the current year's deal-making activity in the United States, up nearly 50 percent compared with figures in the period last year.
  • 5 percent: the current revenue growth rate of US companies, down from 11.2 percent in 2010, according to Citigroup.
  • 37 billion: the amount of Avago Technologies' takeover of Broadcom.
  • 55 billion: the amount of Charter Communications' acquisition of Time Warner Cable.
  • $637 billion: the amount of cash that companies allocated to buybacks in 2007, just before the S.&P. 500 plunged by 40 percent during the following year.
  • 146 billion: the amount of cash that firms devoted to repurchases at the bottom of the market in 2009.
  • 1.5 percent: the appreciation of the buyer's stock price in 74 transformational deals since 2011, according to Citigroup.

Sources:

  • Citigroup report: no date mentioned
  • Thomson Reuters: no date mentioned
  • Charter Communications' news release: no date mentioned
  • Avago's announcement: no date mentioned
  • David J. Kostin, chief US equity strategist at Goldman Sachs: no date mentioned

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