Are We Nearing a Financial Crisis?

Article Source:
http://money.cnn.com/2015/06/28/investing/stocks-market-lookahead-mergers-acquisitions/index.html

Issue:
M&A is becoming increasingly popular this year. For the investors, this is good news. However, rapid merger and acquisition growth may be coming on too fast, and could possibly end in turmoil.

Argument:
Most companies find these deals to be positive additions to their trade due to their ability to cut the costs of resources. Because of this, many see M&A growth to be a valuable opportunity.

      From the perspective of the companies involved, these deals are great for combining costs and resources. However, this may get rid of competition and raise prices for consumers. As a result, demand may go down for the products involved.

 

What the Article has to Say:

     

      All around the world, companies are making M&A (merger and acquisition) deals. The M&A value is so high this year that it is just under the record from 2007. They are especially growing in the U.S.. The main reason for this growth in activity if the continually decrease in sales growth. These are great opportunities for investors because the costs for production go down, while market shares expand. Companies also gain much more bargaining power with these mergers. Many expect this trend to continue well into 2016. Healthcare leads the trend with $342 billion as of this year. The mission to find cures strengthens the want for mergers within this field. Health insurance companies are close to considering mergers as well. The only problem with all this activity is that it is very similar to what was happening right before the financial crisis. There are some differences though. in 2006 and 2007, the amount of M&A deals made up much more of the financial happenings than they are this year. Because of these facts, the possibility of another crisis is not as imminent.

 

 

 How does this Affect Us?

 

      I think that companies should be wary because we've seen this kind of rapid growth right before a financial crisis, and history has a way of repeating itself. If too many companies combine, won't prices rise due to lack of competition? That is what I have gathered from my limited study of economics. So if that is the case, then the markets would actually decrease in size, leaving consumers with no choice but to pay for more expensive goods. In the long run, the consequences won't be just for consumers. Businesses will suffer because their consumers are no longer able to pay for the same quantity of goods, and it may put the whole economy in a tailspin. For now, I would tell companies to merge with caution.