The urge to merge promises to push deal-making activity to new levels this year. Already, January topped $236.7 billion in deals, $89 billion more than the January before, according to Mergerstat.
One reason, says Robert Filek, leader of multinational transactions at PricewaterhouseCoopers LLP, is the grow-or-die orientation in the marketplace. "If you're not growing, you've got a problem," says Filek. "Organic growth is tough. It's sometimes slow, sometimes expensive." And there's the issue of keeping up with the competition. "If you're growing 20 percent organically, that's great. But if your competitors are growing 60 percent through acquisition, you're effectively shrinking," notes Scott Adelson, managing director of Houlihan Lokey, which owns Mergerstat.
Adelson thinks a shakeout in the Internet sector will drive consolidation. But neither Filek nor Adelson thinks the looming demise of pooling-of-interest accounting and the advent of more goodwill charges will force many deals. "The vast majority of institutional investors look at EBITDA or EBIT," says Adelson. "There are a few widows and orphans that are still looking at P/E ratios."