Companies buoyed by investors" deal hunger Investors are rewarding acquisitive companies with higher share prices in a striking reversal of long-term trends, according to data compiled for the Financial Times that highlight resurgent shareholder appetite for deals. Last year, share prices of US companies announcing acquisitions with a value of $1bn or more rose, on average, more than 4 per cent within a day. The increase is the largest ever recorded by Dealogic, the analytics group, and nearly 50 per cent higher than in 2012. It also highlights the departure from the long-term trend whereby the following day the share price fell every single year between 1996 and 2011. Opinion is divided about the causes behind the phenomenon, however. "Investors love to see organic growth, but, when they can't get it, they are going to reward those companies that use acquisitions to grow," said Scott Barshay, a mergers and acquisitions lawyer at Cravath. Mr Barshay worked on the deal that saw the largest jump in the acquiring company's share price last year. When publisher Gannett agreed to a cash payment of $1.5bn for Belo, the Dallas-based television station owner, its share price soared 26 per cent within 24 hours. "There are a lot of smart deals being done that make sense from a short- and long-term view and that is reflected in the market reaction," he added. Steven Barg, head of M&A capital markets at Goldman Sachs, argues that the rising share prices are a function of the abundance of cheap debt. If money is cheap, then investors want a company to have high operating and financing leverage; you are buying earnings cheaply and people believe earnings will grow. When the cost of debt substantially goes up from here, the share price rises we are seeing will be moderate. It is a question of economics. The trend of rising share prices for acquiring companies also applies when deals are first rumoured, before they are officially confirmed. Shares in Textron, the maker of Cessna aircraft, rose 14.5 per cent on the day the FT reported it was buying rival jet maker Beechcraft. The increase equated to a rise in market capitalisation greater than the $1.4bn it had offered to pay. Similarly, when The Wall Street Journal wrote about news of Dutch group Aercap's $5bn acquisition of AIG's aircraft leasing unit in mid-December, the company's shares soared 33 per cent and are today up close to 80 per cent. The increasing presence of activist investors is an added incentive for dealmaking. The alternative of being pushed into better capital allocation, often in public, by an activist fund is one that boards and management are keen to avoid. "The companies that are being smart about using their balance sheets, and can articulate a good story about why they are doing a deal, are being rewarded by investors," said Sarkis Jebejian, a corporate partner at law firm Kirkland & Ellis. Being proactive with regards to using cash is something investors want to see at the moment.