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Hostile M&A jumps to its highest percentage since the financial crisis

Jun 06, 2014  |  Branco Kuznar  |  news | 0 Comments

In a move that signals more companies are comfortable taking on more risk in order to expand their operations, corporations are engaging in hostile mergers and acquisitions activity at the highest rate since the recession.

According to Reuters, the number of hostile M&A deals, or those that come to fruition despite objections from the target company's management, rose to 7 percent of all M&A activity recorded so far in 2014. This marks the highest proportion of global dealmaking since 2007. In the same period last year, this percentage came in at a much lower 1 percent.

The figures, gathered by Dealogic, showed the value of hostile M&A activity for 2014 currently stands at $273.4 billion, compared to last year's $70.6 billion. In the same period in 2007, the value of these deals rose to $377.4 billion.

Many experts believe the jump in unsolicited takeovers can be explained simply by the strong performance of global M&A overall so far this year. However, many believe there are many elements at play in the current environment that could be contributing to the higher numbers.

"My personal take is there are a lot of companies with cheap valuations that have seen sustained pressure leading heavy discounted share prices," Evan Lucas, a market strategist with brokerage firm IG, told CNBC. "A hostile bid can push boards and shareholders to accept what can be low-ball price - there is no doubt there are some cashed up creditors looking to cash in now for the expected upticks over the coming three years."

Companies putting up their defenses
The rise of hostile M&A may suggest that companies are more willing to accept higher levels of risk, however, acquirers are still keeping in mind the defense strategies target companies are employing.

According to Financial News, in the UK, target companies are benefiting from the Takeover Code, which stipulates that foreign buyers entering the UK M&A market only have 28 days to formulate a financing package, convince investors a particular deal is sound and move forward with the deal.

However, despite target companies putting up their stockades, hostile deals may continue to rise as shareholder activism pushes investors toward greater M&A activity.

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