You’ve read in these pages about the tidal wave of IPOs about to hit Wall Street.
This includes rare “unicorn” deals like ride-sharing giant Lyft. But IPOs aren’t the only deals keeping Wall Street bankers burning the midnight oil these days.
Merger and acquisition (M&A) activity is also red-hot.
In 2018 alone, there were $3.6 trillion (with a T) worth of M&A deals done in North America and Europe.
That’s a 6.3% jump from the year before and a whopping 214% increase since the bull market began back in 2009!
M&As: A Sign of the Times
Financial markets moves in cycles, like the seasons of the year. There’s a time to sow and a time to reap. In the business world there is a time to merge and a time to divest past mergers with strategic spinoffs of new companies.
This is a clear sign that we are in the late innings of the business cycle, when both M&A AND spinoffs pick up dramatically.
In the last five years alone there’s been a grand total of $17 TRILLION worth of M&A activity. That’s a staggering dollar amount, nearly as large as the entire U.S. economy!
And this cycle always repeats itself. And right now, my friends, it’s HIGH time for spinoff fortunes to be made!
We are 10 years into this economic expansion. That means big companies are finding it harder and harder to grow profits these days.
The solution: cost cutting, including shedding company divisions no longer deemed a good fit.
That Means More IPOs and Lots of Lucrative Spinoffs
Case in point: 2018’s largest M&A deal was none other than AT&T (NYSE: T) when it gobbled up WarnerMedia — owner of valuable entertainment properties including HBO and CNN.
The price tag was a lofty $85 billion.
Now, my more seasoned followers may remember back when AT&T was affectionately known as Ma Bell. You may remember too that Ma Bell back then was a spinoff investor’s dream.
Not only did AT&T spin off all of the Baby Bell operating companies, many of which later merged with each other (the cycle always repeats), but AT&T also spun off several leading blue chip tech and telecom companies.
These big names include Lucent, NCR, Teradata and Liberty Media, among others.
A patient investor focused on spinoffs alone could have grown very wealthy on AT&T over the last 20–30 years!
Heck, John Malone’s Liberty Media spinoff became another spinoff pot of gold all on its own!
Mark my words, friends, AT&T’s recent buying spree will inevitably be followed by, you guessed it, more lucrative spinoffs to come.
Yes, the M&A/spinoff cycle is repeating again right here and now in 2019.
Last year, Dow blue chip United Technologies (NASDAQ: UTX) acquired Rockwell Collins, a leading maker of communications and aviation systems.
The ink on that deal wasn’t even dry when UTX turned around and said it would soon split itself into three giant companies, spinning off Pratt & Whitney/Collins aerospace, Otis elevators and Carrier air-conditioning as stand-alone companies.
That’s a Mega-Spin of Epic Proportions
Likewise, industrial conglomerate General Electric (NYSE: GE) has already spun off its transportation and oil and gas businesses. GE also plans to spin off its lucrative health care equipment business soon.
Another potentially lucrative spinoff.
And chemical giant DowDuPont (NYSE: DWDP) is now in the process of a three-for-one spinoff that will create three brand-new blue chips for the price of one.
Bottom line: Today’s record-setting M&A deals will soon unleash plenty of future spinoff opportunities for astute investors to profit from.
Here’s to growing your wealth,
Chief Income Expert, Mike Burnick’s Wealth Watch