The NCAA tournament may have come and gone, but a new season of Madness has hit Wall Street: M&A Madness. In fact, in the first quarter alone, 5,000 mergers and acquisitions were completed around the globe, totaling $660 billion in deals. And more recently we’ve had a flurry of M&A activity in the last several days, which is no surprise considering that corporations are awash with cash, and they are looking for a smart way to reinvest this money. Some corporations are using that cash to buy back their stock, while others are hiking up their dividend payments.
I’m a big fan of each of these strategies. They benefit the individual investor and my palms itch in anticipation of the impact on earnings and the profits that come from it. But there’s another very reasonable use for this cash that is becoming very popular right now and is making big splashes in the headlines—mergers and acquisitions.
Take a look at some of the latest deals hitting the market (all of which are in the pharmaceutical industry, coincidentally):
- Pfizer (PFE) is in talks with rival AstraZeneca (AZN) for a pairing that could be among the largest in the industry’s history. Last January Pfizer put nearly $100 billion on the table for AstraZeneca, a 30% premium over AZN’s stock price at the time. Pfizer is no stranger to gargantuan buyouts, having acquired Warner Lambert for $112 billion in 2000.
- Eli Lilly (LLY) is paying Novartis (NVS) $4.5 billion to acquire its animal health business, making Eli Lilly’s own animal health unit—Elanco—the second largest company of its kind in the world.
- In turn, Novartis is scooping up GlaxoSmithKline‘s (GSK) cancer-drug business for $14.5 billion (with as much as $1.5 billion on the table if certain milestones are reached). As part of the deal, GlaxoSmithKline is also buying Novartis’ vaccines businesses for $7.1 billion. GlaxoSmithKline and Novartis are becoming tied at the hip, also in the process of launching a joint venture by combining their respective consumer health care businesses.
- And right now botox producer Allergan Inc. (AGN) is being courted by several drug heavyweights for a potential takeover. Canada’s Valeant Pharmaceuticals (VRX) previously teamed up with activist investor Bill Ackman in a bid that could be worth as much as $45 billion. Then today both Sanofi (SNY) and Johnson & Johnson (JNJ) have emerged as potential buyers. While it’s unclear whether Allergen will choose one over the other, there’s no doubt that excitement over the M&A mania will keep interest in these companies high.
When you own a stock that is involved in a merger or acquisition—or even if your stock has rumors of M&A activity—it can feel like winning the lottery. However, although these companies are high in the headlines now, that doesn’t mean that all these stocks should have been purchased prior to their M&A activity.
In fact, only three of these companies are strong enough to be potential buys—and only one truly passes my high standards—find out which by visiting my Portfolio Grader tool.