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The Year of the Deal in PA.? After a Busy 2017, Mergers and Acquisitions Unlikely to Slow in 2018

By Nick Malawskey| Updated Dec 22; Posted Dec 22, 2017
The following is an excerpt from

Across a spectrum of industries in Pennsylvania, 2017 was a year for big headline deals.

Companies took advantage of a surging economy to continue a trend of mergers and acquisitions that, experts say, is unlikely to slow in the year ahead.

And while each market segment -- retail, food, healthcare -- has its own internal trends driving M&A activity, those trends are buttressed by larger, broader market forces and a favorable regulatory environment that has companies looking to buy.

The list of business combinations and acquisitions making waves in Pennsylvania alone is dizzying: Ahold-Delhaize (which owns Giant), UPMC-Pinnacle, Rite-Aid-Walgreens, CVS-Aetna, Hershey-Amplify, Hershey Med and Highmark, Campbell's Soup and Snyder's-Lance.

Rebounding from the economic recession, over the last several years corporate profitability has soared. For example, the Derry Township-based Hershey Company's profit margins jumped from single to double digits post-recession. That kind of growth has left some companies with strong cash reserves which, having weathered the financial storm, can be used to support mergers or acquisitions.

Those cash reserves are in turn supported by continued low-interest rates, which keeps borrowing costs low, said Daniel Eye, a senior portfolio manager at Roof Advisory Group in Harrisburg.

"With borrowing costs so low, it's much easier to buy companies/businesses and have that purchase be accretive to your earnings and to be accretive in a fairly short period of time," Eye said. "Investors, shareholders and the stock market in general tend to look favorably on acquisitions that are expected to add to the acquiring company's bottom line quickly."

While those market and regulatory forces have provided a strong financial environment to support M&A activity, many of the announced deals -- whether in healthcare or retail -- have sounded similar themes when being discussed by corporate officials.

When Hollywood Casino owner Penn National announced it was acquiring fellow gaming company Pinnacle Entertainment, corporate executives highlighted, among other things, the cost savings the merger would bring. An eye to cost savings was also a driver in the merger of Ahold and Delhaize which completed this year, and resulted in a restructuring of Ahold USA in the wake of the merger.

In industries like food or retail, where revenue growth is often slow, merging with or acquiring a competitor is a way for companies to increase their bottom lines through consolidation and cost reductions either through headcount reductions or consolidations in areas like manufacturing or distribution efforts, said Eye with Roof Advisory Group.

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