Appetite for the big deal is returning

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Posted: Thursday, January 9, 2014 12:00 am | Updated: 11:12 am, Tue Mar 25, 2014.

What may have been the most auspicious deal of late was not the biggest or the most groundbreaking of mergers. It was just one that took a little gumption.

In September, Applied Materials, a California maker of semiconductor manufacturing equipment, agreed to acquire its rival, Tokyo Electron, in a deal valued at more than $9 billion.

As an all-stock, cross-border deal, it was the kind of tricky merger that telegraphed executives’ confidence and an appetite to make even slightly risky deals.

“It was when the light bulb went on,” a senior dealmaker said.

Are the animal spirits finally returning to the corporate world?

In the United States, they appear to be. While global dealmaking was basically flat for a fourth consecutive year, annual volume in the United States was up 11 percent in 2013 compared with the previous year, according to Thomson Reuters.

Companies from New York to San Francisco announced more than $1 trillion worth of deals during the year, the most since the financial crisis.

What’s more, activity picked up over the final two quarters, with volumes rising sharply from the first six months of the year.

“There’s a feeling of a more stable backdrop that executives think will be with us for the foreseeable quarters,” said Blair W. Effron, co-founder of Centerview Partners, an independent investment bank. “I didn’t have a sense of that at the end of 2012 or 2011.”

And with markets buoyant thanks to relative stability in Washington and around the globe, as well as moderate growth from corporations, the bankers and lawyers that advise companies on mergers and acquisitions are more optimistic than they have been in years.

“From a macroeconomic perspective, we have a stronger economy, we have Congress behaving more responsibly, and we have all appearances of stability at the Fed,” said Scott A. Barshay, head of the corporate department at Cravath, Swaine & Moore, one of the top law firms on Wall Street. “CEOs can look forward and say, ‘I don’t see any near-term economic bumps.’ ”

This stability is leading executives and directors to return to the business of plotting transformative deals that might take months or years to execute, and even longer to pay dividends.

“Boards are thinking about their goals not just tactically in a one-year 2014 increment, but more strategically for the longer term,” Effron said. “Companies are looking further down the field.”

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