business

Firms with interim bosses usually opt for the quiet life, but the lack of a permanent boss did not stop Hewlett-Packard (HP) from launching a bidding war Aug. 23. The computer giant offered to buy 3Par, a data-storage firm, for $1.5 billion, topping the $1.15 billion offered a week earlier by longtime rival Dell. (Friday, HP raised its bid to $1.88 billion.)

On Aug. 19 chipmaker Intel splashed out $7.68 billion to buy McAfee, an antivirus-software firm. Nor is the fun confined to high-tech. On Aug. 17 PotashCorp, a firm that mines potash, from which fertilizer is made, received and promptly rejected a $38.6 billion offer from mining giant BHP Billiton. BHP is now pursuing a hostile bid.

Investment bankers are delighted. This quarter will probably see more mergers and acquisitions (M&A) than any since the crash in 2008. Is a new merger wave, widely predicted in the past year, finally breaking?

M&A is a confidence game, reckons Carsten Stendevad of Citigroup's corporate-finance advisory arm. That makes the recent increase in activity surprising, since business confidence has been weak, he says. However, the coincidence of several deals happening at once may make other bosses pluck up the courage to make a move.

"It's the front-page effect," said Stendevad.

Not everyone thinks such deals are wise. Yet, even allowing for macroeconomic uncertainty, conditions are ripe for a surge in them. For a start, potential buyers are brimming with cash. Firms in the United States and Europe built up record reserves during the crisis, out of fear. If they don't spend them, investors will demand bigger dividends or share buybacks.

The tough economy has helped the top firms in many industries to strengthen their position, in terms both of market share and of stock-market valuation. These firms are now well-placed to do the sort of consolidating deals that tend to deliver better results to investors than the supposedly "visionary" strategic mergers that are more common when the economy is booming. So far, the bosses of weaker firms have typically resisted takeovers by telling their shareholders that the market is undervaluing their shares and that they will soon perk up. These shareholders may now be losing patience.

Sovereign funds join in

Publicly traded firms are reluctant targets, but there are many willing corporate brides in the portfolios of private-equity firms. Having raised a stack of cash and often paid over the odds during the bubble years, private-equity firms are under huge pressure to return some money to their investors. Many would like to raise new funds, which is easier if you can show that the previous one wasn't a complete disaster. At the same time, some private-equity firms have regained their taste for acquisitions: Witness Blackstone's $4.7 billion purchase of Dynegy this month, the biggest private-equity deal since 2007.

A growing share of new deals will be in emerging markets and involve raw materials. For example, Vedanta, an Indian mining and energy firm, recently announced it was buying a majority stake in Cairn Energy's Indian oilfields for $8.5 billion. The trend of emerging-market multinationals buying firms in rich countries faltered after the market crash.

Acquirers such as Lenovo, a Chinese firm that bought IBM's personal-computer business, found they had not got their money's worth. But with stronger growth in emerging markets filling the coffers of local firms, their appetite for adventure in the old world is returning.

The next few weeks will be crucial. M&A activity may slump as quickly as it surged as bosses return from their summer holidays to find the economy still in trouble. But history suggests that once a merger wave begins, it can grow quickly.

Stendevad of Citigroup points out that in the first two years of the rebound in deals after the recession of the early 1990s, global M&A volume rose by 25 percent and 24 percent respectively. In the first two years of recovery after the downturn of 2000-01, it grew by 40 percent and 43 percent. Will history repeat itself?