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Conditions appear ripe for a further increase in Mergers & Acquisitions (M&A) activity for the balance of 2011.  To appreciate this sentiment, consider that cash sitting on U.S. corporate balance sheets is at its highest relative level in decades.   Likely uses for this idle cash could include business expansions, stock buy-backs, dividend increases or M&A activity.   Given the many economic headwinds facing the U.S. economy, including, but not limited to, high unemployment, low consumer spending, increasing commodity prices and the fear of tightening credit given the ongoing sovereign debt crisis in Europe,  prospects for increased corporate earnings stemming from increased sales seem difficult.

As a result, many corporations may use this opportunity to increase shareholder value through strategic mergers and/or acquisitions.   To this end, James Craigie, CEO of Church & Dwight; a consumer products company known for such household brand names as Arm & Hammer, Trojan, Aim, Close-up and Oxi Clean, recently told Bloomberg News on September 8, 2011, “The absolute best way for us to create value for shareholders is through acquisitions,” and further, “As pessimistic as I am about the economy, I’ve never been more optimistic about the M&A Environment.”

In my opinion, the sentiment expressed by Mr. Craigie is not necessarily unique to Church & Dwight but may very likely be felt by many corporate leaders in the U.S. across various sectors and industries.    Accordingly, recognizing the tougher regulatory environment that appears to be permeating around larger mergers and acquisitions, it would not surprise us, at Hennion & Walsh, to see a spike in M&A activity during the final four months of the year recognizing that 2011 in already on track to be a historic year for M&A activity.

According to Pricewaterhouse Coopers LLP (PwC), during the first five months of 2011 there were 1,276 announced transactions with a total value of $454 billion, representing a 39 percent increase in value over the same period in 2010, which saw 1,336 deals worth $327 billion.  In addition, Martyn Curragh, U.S. Transaction Services Leader with PwC commented, “An increase in total deal value in the last twelve months ending May 2011 indicates a sustained M&A cycle, and as confidence continues to build, markets stabilize and businesses look towards growth, we expect the acceleration of the M&A market to continue in the second half of 2011.”

Chart Source:  PricewaterhouseCoopers LLP, “PwC U.S. Mid-Year M&A Outlook 2011”, June 8, 2011

While the U.S. economy still needs to see an increase in consumer spending (which is clearly impacted by the status of the U.S. labor market), as consumer spending still accounts for over 70% of Gross Domestic Product (GDP) in the U.S., to help build a sustainable economic recovery, this type of M&A activity can help to provide for some stock market growth within an economy that is struggling to provide any growth on its own.

*Neither the author, nor Hennion & Walsh Asset Management, currently hold any positions in the publicly traded common stock of Church & Dwight.