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U.S. M&A Activity During Periods Of Rising Yields

Despite increasing borrowing costs, higher interest rates have not appeared to slow merger and acquisition activity historically.

The yield on the benchmark 10-year U.S. Treasury note has climbed more than 40 basis points since the U.S. presidential election. In past periods when long-term rates moved significantly higher and borrowing costs increased, we found that the dollar amount of announced U.S. M&A transactions generally increased when measured against the comparable preceding period.

We examined five periods during the last 30 years when the yield on the 10-year Treasury jumped. In every case but one, announced U.S. M&A activity actually increased when compared to the preceding period of declining or steady rates. In the analysis, the time span during which rates rose was the same length as that of the preceding period.

The only time in our analysis when higher rates led to a corresponding decline in announced U.S. M&A activity occurred between October 1986 and September 1987, when the 10-year Treasury’s yield rose 123 basis points to reach 9.64%. Deal activity totaled just $22 billion during the period, down 3.9% from the comparable preceding period.

More recently, in the four months since early July 2016, the yield on the 10-year has risen close to 100 basis points, while $772 billion in U.S. M&A activity has been announced. That compares to the $593 billion in deal volume in the four-month period preceding July 2016. U.S. M&A deal value has risen 30% since yields touched a cyclical bottom in the summer compared to the preceding four-month period.

The recent rise in yields appears to have done little to dampen deal makers’ enthusiasm to seek out new targets thus far. In fact, with over $106 billion in U.S. M&A occurring since Election Day and $466 billion to date in the fourth quarter 2016, deal value continues to move ahead at a robust pace.

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