NEW YORK — Deal-making was again on the rise last week in the health care, tech and energy sectors — providing another boost for stocks.
With the economy still in recession, analysts say mergers and acquisitions — just like cost-cutting measures — should help firms expand their business and profits as well as help boost the market this year.
“M&A is a very good thing in this environment,” said David Chalupnik, head of equities at First American Funds in Minneapolis.
As the second-quarter earnings season has already revealed, firms are handily beating analysts’ estimates even in a very weak business environment: They’ve reined in costs and used other tools to squeeze profits out of shrinking revenue.
An indirect route to growth
Investors, seeking any signs of rising profits, haven’t complained, with the stock market jumping another 4 percent over the past week.
Similarly, while companies typically can’t grow organically in tough economic environments where consumers keep a close watch on their wallet, making deals can provide a route to growth.
Investors will also like this: Acquisitions reduce the pool of available stocks in the overall market, thereby lifting prices in the market. Speculation on potential targets also tends to lift entire sectors of the market.
Analysts also say money managers are afraid of missing out on a continued rally.
“There is so much cash still on the sidelines,” said David Darst, chief investment strategist at Morgan Stanley Smith Barney. “People missed it, and they’re beginning to worry that the train isn’t going to come back for them.”
Some big acquisitions announced
On Thursday, Bristol Myers Squibb Co. said it plans to pay $16 a share in cash for Medarex, which specializes in antibody-based therapeutics for such illnesses as rheumatoid arthritis and cancer.
The takeout price equated to a fat premium of about 90 percent.
And in the technology and retail arena, announced its biggest acquisition ever, saying it would buy online footwear retailer for $874 million in cash and stock.
Mostly due to disappointing earnings from Microsoft and partly due to similar results at , however, stocks sank Friday — putting U.S. stocks’ impressive recent winning streak in peril.
At the close, the Dow Jones industrial average gained 23.95 points, or 0.3 percent, to 9,093.24, a weekly advance of 4 percent. The S&P 500 index added 2.97 points, or 0.3 percent, to 979.26, leaving it 4.1 percent ahead of last Friday’s close. Snapping a 12-session winning streak, the Nasdaq Composite fell 7.64 points, or 0.4 percent, to end at 1,965.96, with the technology-laden index gaining 4.2 percent from the week-ago finish.
