Corporate Acquisitions

This week's blog covers the topic of Corporate Acquisitions. The first section is the weekly recap from Vanguard. In the middle is a brief overview of this topic. The last section is a bit of trivia about August for your enjoyment.

Vanguard Weekly Recap

The saying "No news is good news" probably would have served the economy well after another week of dismal economic reports. The government's revised benchmark indicator of economic growth dropped, durable-goods orders slowed to a crawl, and the housing market endured a double-whammy as new- and existing-home sales plunged. For the week ended August 27, the S&P 500 Index fell 0.7% to 1,064.59 (for a year-to-date total return—including price change plus dividends—of about -3.3%). The yield of the 10-year U.S. Treasury note climbed 4 basis points to 2.66% (for a year-to-date drop of 119 basis points).

Corporate Acquisitions

Corporations are once again starting to acquire other companies. I have personal experience with this as CommScope acquired a division of Avaya and moved me and my family to North Carolina about 6 years ago. Here are the bullet points:

* When the economy goes into a recession stock prices drop and acquisitions basically stop.
* As the economy recovers, corporate profits increase with increasing stock price and the numbers of acquisitions increase.
* It is a very positive sign for the economy and the stock market as the company doing the acquiring believes that the value of the company being acquired is cheap looking into the future and their business can afford the additional cost.
* The stock price of the acquiring company goes does because of the cost to acquire.
* The stock price of the acquired company goes up as the Board of Directors will only allow the acquisition if it brings additional value to the stock holders.
* To pay for the acquisition, cost is reduced by eliminating duplicate corporate functions like HR, Purchasing, Accounting, etc.
* The ultimate reason for the acquisition is that it is cheaper to acquire than to grow organically.
* The timing of the acquisition is approved by the Board of Directors who believe that the business climate is improving.

Bottom Line: This recent increase in corporate acquisitions is very bullish for the stock market and reduces jobs increasing unemployment. This continues to lead to a stagnant economy and low interest rates.

August Trivia

The hot and sticky month of August was named after Julius Ceasar’s grandnephew Augustus.

The Roman Senate named a month after General Augustus once he became emperor of the Empire; which happened after his legions defeated Cleopatra and Marc Anthony in battle.

The Senate also changed the number of days in the month to 31, so the month would have as many as Julius Ceasar’s month, July, had. It became the eighth month of the year in the Gregorian Calendar.

The precious stone of August is a Peridot and Onyx. The Gladiolus and Poppy are both known as the August flower.

But did you know August is: Women’s Small Business Month; Admit You’re Happy Month; National Psoriasis Awareness Month; National Sandwich Month; National Catfish Month; Black Business Month; Panini Month; Happiness Happens Month and Inventor’s Month.