The Economist: Mega mergers, big getting bigger — that should worry you

Forget the odd blockbuster deal; we're now in an era where size itself is the strategy. Mega-mergers over $10bn account for a record 48% of total deal value this year, while billion-dollar venture rounds dominate startup funding — most with a corporate backer attached. Cheap-ish capital, AI capex gluttony, friendlier antitrust regulators and a "bigger is safer" boardroom mindset are fuelling the frenzy. America's top decile of listed companies now controls over three-quarters of total market cap — the most concentrated in a century. History says half of mega-mergers fail. When today's giants are this leveraged, one stumble could ripple through the entire system..The Economist.From The Economist, published under licence. The original article can be found on www.economist.com© 2025 The Economist Newspaper Limited. All rights reserved..Nowadays it is easy to get desensitised to big numbers. Every week stonking deals are announced. Only four days after SpaceX, Elon Musk’s rocket-maker, raised $86bn in the largest ever public listing on June 12th, it said it would buy Cursor, an artificial-intelligence coding startup, for $60bn. The same day DeepSeek, a Chinese AI lab, said that it had raised $7bn in the fourth-biggest venture-capital (VC) investment in the country.So far this year mega-mergers worth over $10bn have accounted for 48% of total deal value, the highest level on record, according to Dealogic, a data provider (see chart 1). Bets on startups are also growing more concentrated: investment rounds larger than $1bn have accounted for 61% of total VC funding this year, with four-fifths of those rounds involving a corporate investor, according to PitchBook, another data provider (see chart 2).Indeed, the trend towards supersize capital flows is visible everywhere you look. Greenfield foreign direct investment (FDI) projects worth over $1bn have accounted for 42% of the total since the start of 2024, up from 28% from 2016-18, according to fDi Markets, another data provider (see chart 3)..Much of this activity centres on America. Last year the country was the largest destination and source of greenfield FDI projects worth over $1bn. It is also home to 14 of the 15 startups that have received the biggest cheques since the start of 2024. For the 71 mega-mergers since the start of 2025, 44 of the buyers hail from America.But the pattern has also spread to other regions. Last year Taiwan was the second-biggest source of jumbo FDI deals, followed by the UAE and China. Large VC deals are being struck outside America too. OneDay, a Singapore-based data-centre operator, raised $5bn in June; Nscale, a British rival, attracted $2bn-worth of investment in March.Big transactions come and go in waves. Yet it is rare for these cycles to be so synchronised, and so dependent on a small number of giant firms. That brings dangers.The trend towards supersize investments is the result of a combination of various undercurrents in global business. First is the availability of capital, despite interest rates having risen from unusually low levels. The cash holdings (including short-term investments) of companies in America’s S&P 500 index have reached $2.2trn. These firms are also earning more than ever. In America corporate profits are near an all-time high when compared with GDP. That, in turn, has helped push market values to record levels, which gives firms yet more scope to perform takeovers and raise additional debt or equity. On June 1st Alphabet said it would sell $80bn-worth of stock—a vast amount, but a rounding error for a company whose market value has soared to $4.4trn.Much of this cash is being used to fund the AI boom—the second factor behind the trend. Five hyperscalers—Alphabet, Amazon, Meta, Microsoft and Oracle—are expected to shell out perhaps $800bn in capital expenditure this year as they race to erect data centres around the world. At the same time, they are among the biggest financial backers of AI startups. The AI boom has also encouraged a number of big corporate tie-ups, including the merger of Dominion and NextEra, a pair of American power utilities, and the acquisition of CyberArk, a cyber-security company, by Palo Alto Networks, the market leader.The third factor behind the wave of giant capital flows is politics. In America, the second Trump administration has proved far more relaxed than its predecessor about big mergers; Andrew Ferguson, chair of the Federal Trade Commission, likes to say that his department will “get out of the way” of deals that it thinks pose no threat to consumers. The European Union, fearing that its corporate champions will be left behind, has also recently revised its merger guidelines to make tie-ups easier..Meanwhile, protectionist governments are pressing companies to reshore manufacturing with tariffs and subsidies. As a result, many big firms are spending huge sums on additional facilities overseas, such as the chip plants in Arizona constructed by TSMC, a Taiwanese semiconductor giant, or the new car factory in Hungary for BYD, a Chinese electric-vehicle colossus.Technological change and political meddling have resulted in a more uncertain business environment, and bosses are increasingly concluding that greater scale will offer greater safety—a fourth factor behind the investment frenzy. “In a lot of boardrooms I have heard that it is better to be bigger,” says Jake Henry of McKinsey, a consultancy. Investors appear to agree. The Economist looked at non-financial American firms in the Russell 3000 index and divided them into quintiles according to market value. In 2019 the median price-to-earnings ratio (a measure of how highly investors value a company’s profits) for the largest quintile was 18, compared with 14 for the lowest. Today those figures are 26 and 15, suggesting that the market is valuing the profits of big firms more richly than in the past (see chart 4). The overall result is unchanged when technology firms are excluded.Growing painsCompanies’ race to scale also poses risks, however. Academics reckon that the chance of a big merger paying off is no different from that of a smaller one (that is, roughly 50-50). Yet the consequences can be catastrophic when things go wrong. Bain, another consultancy, calculates that in almost half of mega-mergers last year the target’s value was over 50% of the buyer’s market capitalisation. Vast amounts of debt are often required.It is not only mega-mergers that are a cause for concern. Until recently the huge data-centre outlays by America’s hyperscalers were mostly paid for with cash generated by their other businesses. Now the companies are borrowing heavily. As a result, the ratio of their debt to their annual free cashflow is deteriorating. Consider Amazon. Its ratio has fallen from below that of the S&P 500 average in 2019 to more than four times the average today.All this has ramifications for the wider economy. The top decile of listed companies by value now account for over three-quarters of total market capitalisation in America, the highest share in a century, according to Deutsche Bank. This increasingly top-heavy structure means that the failure of just one debt-laden corporate giant could cause significant disruption to financial markets.Growing corporate concentration may also prove malign in other ways. Consumers, employees and small suppliers could be squeezed and governments unduly swayed by the armies of lobbyists employed by corporate colossi. That could further fuel the rise of populists on both sides of the political spectrum. According to Gallup, a pollster, the share of Americans who say they trust big business has roughly halved since 2000, to 15%. Scale may confer many advantages, but public adoration will not be one of them. .Sign up for your early morning brew of the BizNews Insider to keep you up to speed with the content that matters. The newsletter will land in your inbox every morning on weekdays. Register here.Support South Africa's bastion of independent journalism, offering balanced insights on investments, business, and the political economy, by joining BizNews Premium. Register here.If you prefer WhatsApp for updates, sign up to the BizNews channel here.

The Economist: Mega mergers, big getting bigger — that should worry you

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