In light of recent market volatility, the Global Markets Intelligence research unit of S&P Capital IQ examined the relationship between annual U.S. merger and acquisition deal value and the annual performance of the S&P 500 index.
As highlighted below, in the nine instances of full-year U.S. announced M&A deal value topping $1 trillion, the S&P 500 index gained an average 10.8%, and in only two occurrences – 2000 and 2011 – the S&P 500 ended in negative territory. With over $1.45 trillion in U.S. M&A deal value announced to date this year, in the three full years where U.S. M&A topped that level, the S&P 500 posted an average gain of 9.3%.
However, considering the accelerated pace of M&A deals announced in 2015, on track potentially for $2 trillion, the worst year in recent memory for the equity market occurred in 2000 when U.S. M&A set a high of $1.72 trillion when the technology and telecommunication bubble erupted and the S&P 500 index subsequently lost 10.1%.
Meanwhile, a review of year-over-year percentage changes in U.S. M&A deal value and S&P 500 performance is less clear cut. Of the seven occurrences where U.S. M&A deal value endured an annual decline, only three corresponding years saw the S&P 500 likewise post a decline. Conversely, in the nine instances where U.S. full year M&A deal value saw a year over year advance, the S&P 500 registered a gain in seven instances, with only the year 2000 and 2011 seeing declines in the index.
To that end, from our perspective, the direction of U.S. M&A deal value appears to be associated more frequently with a rising equity index when M&A is on the ascent, compared to a drop in M&A being concurrent with a decline in equities.
On the other hand, reviewing the S&P 500 index’s full-year performance the year following a U.S. announced M&A topping $1 trillion is less reassuring to market bulls. In the eight occurrences where U.S. M&A deal value exceeded $1 trillion, the S&P 500 on average lost 3.4%.