Merger mania seems to have hit a high in the first half of 2015 the world over. This was especially true for corporate America as U.S. targeted deals touched a historic $1.03 trillion in 1H, a level never achieved by a country in a semi-annual time frame. The trend picked up steam primarily in the second quarter with total deal value amounting to $635 billion, per Dealogic. The second quarter of the year set the record for the highest quarterly deal value.
An improving economy, decent stock market performance, ultra-low interest rates across the developed world, and piles of cash on the companies’ balance sheet propelled M&A activities. To add to this, companies deploy ‘tax inversion’ tactics via global mergers.
The U.S. corporate tax rate is quite high. Through such deals, the U.S. domiciled companies joined foreign companies and shifted their headquarters to foreign lands where tax rates are lower in order to lower their tax bills. Though the government has implemented stringent regulations to minimize the resultant loss in tax revenues, the strategy is still in vogue (read: New Tax Inversion Rules Put Merger Arbitrage ETFs in Focus).
Probably, global M&A deals also logged the ‘second highest half yearly volume on record in 1H 2015’. This value stands at about $2.19 billion, up 31% year over year. Notably, such deals are helping the companies to curtail costs, improve margins, unlock value and derive significant synergies (read: Profit from Merger Mania with this Stock and ETF).
As in 2014, mergers and acquisitions continue to be in focus in the health care space in 2015 as well. Margin erosion and increased regulatory interference, thanks to the Health Care Reform Act or Obamacare led companies to consolidate within the sector (read: Pharma ETFs Soar on Acquisition Spree).
According to the latest data released by Dealogic, the value of M&A in the U.S. Healthcare sector took the top position in the first half of this year with $293.6 billion from 537 deals. This represents the largest volume ever in any semi-annual period and a 73% annual rise. The sector actually has been the leader in terms of M&A activity in three of the last five quarters.
Most recently, Aetna (AET - Free Report) agreed to acquire competitor health insurer Humana (HUM - Free Report) for $34.1 billion in a cash and stock deal that will reduce the number of managed care players from the current five to four.
Investors can benefit from this surge by investing in Zacks Rank #1 (Strong Buy) ETF iShares U.S. Healthcare Providers ETF (IHF) and Zacks Rank #2 (Buy) ETFs Health Care Select Sector SPDR Fund (XLV), iShares U.S. Healthcare ETF (IYH) and Vanguard Health Care ETF (VHT).
Technology comes a distant second in the ‘US-targeted’ M&A space with deals worth $143.8 billion in 1H 2015, per Dealogic. This indicates the biggest semi-annual tally in 15 years. Investors should note that the last time the sector reached this monumental height was in 1H 2000 with $212.9 billion of deal value (read: 4 Great Reasons to Buy These Top Ranked Tech ETFs).
Among the broader tech sector, the semiconductor category is drawing attention having signed massive merger deals this year. As a matter of fact, the semiconductor space has witnessed the biggest ever tech deal announcement between Avago Technologies (AVGO) and Broadcom (BRCM) worth $36.6 billion (read: Semiconductor ETFs Surge on Avago - Broadcom Deal).
Market Vectors Semiconductor ETF (SMH), iShares PHLX Semiconductor ETF (SOXX) and SPDR S&P Semiconductor ETF (XSD) are the ETFs to get a boost from this trend. The broader tech sector ETF, SPDR Technology Select Sector ETF (XLK - Free Report) ), a Zacks Rank #1 ETF, should also benefit from the flurry of M&A activities.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>