The Revival of Mergers and Acquisitions

Is M&A back? It sure looked that way this past Tuesday, when the biggest deal of 2024 emerged: Capital One Financial agreeing to buy Discover Financial for $35 billion. Then, Walmart agreed to pay $2.3 billion for smart-TV maker Vizio. And Truist Financial sold its Stone Point Capital insurance brokerage to Clayton Dubilier & Rice and co-investors for $15.5 billion in enterprise value.

A Promising Start

Yet, a sunny day doesn’t mean that winter is over. True, so far, 2024 looks more promising than 2023, according to Dealogic. Some $290 billion worth of U.S. deals have been announced this year, in 1,051 transactions. Last year, at this point, saw $125.6 billion worth. Global mergers and acquisitions are at $455 billion so far, up 57% over 2023.

Looking Back and Moving Forward

The biggest year on record was postpandemic 2021, which saw $312 billion in the U.S. by this time, and $6.1 trillion for the year. Since then, it has been downhill. Rising interest rates and recession fears have stifled deals. But hope for rate cuts is bullish.

Challenges and Uncertainties

Economic uncertainties linger. And the Biden administration has been scrutinizing big deals. The Federal Trade Commission and some states could sue over supermarket chain Kroger’s proposed $24.6 billion acquisition of Albertsons as early as this week. Analysts have raised the possibility of Capital One and Discover running into antitrust issues, and questions remain around Nippon Steel’s $14 billion deal for U.S. Steel. Bankers shouldn’t count their bonuses yet.

Last Week Recap

Markets

In China, the Lunar New Year holiday began, with foreign direct investment falling to 1990s levels and officials making a record cut in mortgage rates. U.S. stocks were mixed after the Presidents Day holiday. No problem, Nvidia earnings turned indexes positive. On the short week, the Dow Jones Industrial Average was up 1.3%; the S&P 500 1.4%, a record; and the Nasdaq Composite 1.4%. Japan’s Nikkei 225 set a 34-year high.

Companies

JetBlue Airways said it would accept two Carl Icahn representatives to its board.

Home Depot reported a fifth consecutive quarterly drop in revenue.

HSBC took a $3 billion charge on its Chinese bank and bad commercial real estate loans, marring annual record profits.

Walmart beat on earnings but was cautious about 2024.

Warner Bros. Discovery whiffed on cable and studio revenue.

Nvidia released blowout earnings, with quarterly revenue tripling from a year earlier, sending its market cap up nearly $300 billion, breaching $2 trillion on Friday morning, only to fall back.

Intuitive Machines landed the first U.S. spacecraft on the moon in 50 years.

Deals

Capital One Financial agreed to acquire Discover Financial Services for $35 billion in an all-stock deal that could attract regulatory attention…

Walmart confirmed that it was buying smart-TV maker Vizio for $2.3 billion...

Truist Financial sold off the remaining 80% of its insurance brokerage in a $12.5 billion all-cash deal to a group led by Clayton Dubilier & Rice.

Next Week

Monday 2/26

Amazon.com will join the Dow Jones Industrial Average of 30 stocks prior to trading, replacing Walgreens Boots Alliance.

S&P CoreLogic releases its Case-Shiller Home Price Indices for December. Home prices are estimated to have jumped 6.3% year over year in 20 major metropolitan areas, according to FactSet, an acceleration from November’s 5.4% growth.

Wednesday 2/28

Salesforce, TJX Cos., Snowflake, Baidu, Paramount Global, C3.ai, Okta, Hewlett Packard Enterprise, and HPInc. report quarterly results.

Thursday 2/29

The Bureau of Economic Analysis releases the personal-consumption expenditures index for January. Consensus estimate as measured by FactSet has the PCE rising 2.4% year over year, compared with a 2.6% rise in December. The core measure, which strips out energy and food prices, is expected to gain 2.8% year over year, compared with a 2.9% rise in December. Federal Reserve officials have said they want to see the core measure on a sustainable path to 2% growth before they start cutting rates.