Market participants often look at merger and acquisition (M&A) activity as an indicator of where we may be in an economic cycle. M&A tends to rise when the economy is growing, and company management believes there is a fair amount of clarity on business fundamentals. C-suites tend to adopt a more conservative stance during periods of elevated volatility or economic deceleration, and corporate actions slow. The drop in M&A deals evidences this during the Dot.Com bubble, the Great Financial Crisis, and the COVID-19 shutdown.
While deal flow for M&A took a breather during the pandemic, the number of deals has roared back, eclipsing previous record levels (see chart above). Many attribute the increase to planned deals that were placed on hold last year and cheap financing in the current low-rate environment. In addition, liquidity from private equity and strategic corporate buyers is fueling the boom. At some point, the M&A cycle may cool, but in the meantime, managers across traditional and alternative strategies are poised to take advantage of the strong tailwinds.

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