Periscope.

Byline: Marc Peyser; Rana Faroohar; Mark Hosenball; Julie Scelfo; Jonathan Mummolo; William Underhill

Business: Merge Like It's 1999

Champagne corks are popping from Wall Street to Sao Paulo, as global dealmaking has reached its highest level since the heady days of the dot-com bubble. New figures released by analysts Thomson Financial last week show that the value of worldwide mergers and acquisitions reached $1.8 trillion in the first half of 2006, thanks to a second quarter that was the most active since 2000.

The obvious question: is this smart business or irrational exuberance? Experts say more the former. "The current boom is more soundly based than six years ago," says Henry Gibbon, head of global M&A for Thomson. "There's an appreciation for past mistakes." While deals aren't necessarily cheap, the underlying reasons for many of them make sense. Europe, which is leading the global M&A boom, is undergoing a new round of market liberalization in utilities, one key reason that the energy sector tops the list for M&A activity--electricity and gas mergers, rather than overblown oil deals, are moving the market. Likewise, many European banks are teaming up across borders in a much-needed consolidation of financial services, which will continue over the next few years.

One surprise: for all the talk about the Russians and Chinese, they still spent only $8.5 billion and $14.6 billion, respectively. That's a tiny share of the global market, and less than either India ($24 billion) or Brazil ($30 billion). Meanwhile, Western firms are continuing to buy in those fast-growing markets. The Royal Bank of Scotland recently took a stake in a Chinese bank. U.S. and EU steel firms are beefing up acquisitions in China, India, Brazil and Eastern Europe. While we may not see another record quarter for some time, most experts believe the dealmaking will continue into next year, as Western companies go where the growth is.

Rana Faroohar

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