It is a dramatic drop compared not just to the 1990s, when stock-for-stock deals accounted for over half of all mergers, but also to 2016, when the average equaled 23.9% by dollar value.
All-share M&A deals involving US companies fell to historic lows in 2017, according to Dealogic. In the year to December 1, they accounted for just 10.6% of transactions by dollar value, the lowest level since the data and analytics firm started tracking them in 1995.
It is a dramatic drop compared not just to the 1990s, when stock-for-stock deals accounted for over half of all mergers, but also to 2016, when the average equaled 23.9% by dollar value.
“The decline in stock-swap mergers has two or three main causes,” says Steven Kaplan, the Neubauer Family Distinguished Service Professor of Entrepreneurship and Finance at the University of Chicago Booth School of Business. “First, debt is perceived to be very available and very inexpensive. At the current low interest rates, acquirers do not find debt payments particularly onerous. Second, stock valuations are perceived to be fully priced, if not high. Sellers do not want to take the risk of receiving overpriced stock, and they would rather have cash. Third, in the late 1990s, when stock swaps were more popular, the large stock-swap deals ended up going very poorly for both targets and acquirers—think AOL-Time Warner.”
Yakov Amihud, Ira Rennert Professor of Entrepreneurial Finance at New York University’s Stern School of Business, agrees: “Cash offers were historically associated with better outcomes for bidders. One could suspect that a large component of stock in the offer, or all-stock offer, may reflect the bidder’s view that its stock is overvalued and its management thus uses it as currency to pay for the deal.”
However, Amihud adds, the fact that there are fewer all-stock offers necessarily implies the opposite, “which is interesting given the high stock prices and high multiples now.”
Despite widespread doubts over stock valuations and the availability of cheap cash, reports of the premature death of all-share transactions might be greatly exaggerated. Just as 2017 was about to close, Walt Disney announced it was acquiring 21st Century Fox’s film and TV studios in a $52 billion all-stock deal.
