Wesfarmers Ltd (ASX: WES) just announced it is selling Kmart Tyre and Auto Service for $350 million.
Does all of this merger & acquisition activity suggest that the end of the cycle is near?
Perhaps. There is no one ‘indicator’ that an economy is about to turn. It is true that in previous economic cycles a lot of activity came at the end. As valuations and investor sentiment reach a crescendo management teams become confident to make these big deals.
Many businesses may be trying to finalise some big moves before interest rates rise further, which would make that debt more expense.
Every acquisition is different, with various merits and pitfalls. It’s hard to say at this point whether any business has overpaid until at least the first complete annual report.
Acquisitions are great for shareholders if they are made at a good price.
There is no point worrying whether the end of the cycle is near. No-one can know for certain. There could be years left of economic growth. A lot businesses will continue to do well over the long-term, even if Australia does hit a rough patch.
It’s much better to hold a quality portfolio of businesses and perhaps increase your cash holdings a little than sell out of all of your shares completely. Shares have proven to be the best choice over the long-term.
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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended BWX Limited and Wesfarmers Limited. The Motley Fool Australia owns shares of Capilano Honey Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.