Latest / Bull Market Conversations with Fexingo: Rallies, Momentum, and Riding Market Strength / How Bull Markets Reshape M&A Strategy in 2026
Transcript
- Lucas: So a story that's been quietly building under the surface of this bull market is the resurgence of megadeals — mergers and acquisitions in the tens of billions. We saw it last week with Microsoft's $75 billion bid for an AI infrastructure firm. Luna: Seventy-five billion. That is a big number even for Microsoft. What's driving these deals now, versus two years ago? Lucas: A few things. First, financing costs are still relatively low. The Fed funds rate is at 3.63 percent — not rock bottom, but down from where it was in 2023. And corporate bond yields have stayed reasonable, so companies can borrow cheaply. Luna: Right, and their own stock prices are high. Microsoft is trading near all-time highs, so using stock as currency makes sense. Lucas: Exactly. When your equity is expensive, you can issue shares to pay for acquisitions without diluting existing shareholders too much. That's a huge tailwind for M&A. Luna: But we've seen this movie before. The post-pandemic boom in 2021 and 2022 led to a lot of deals that later got written down. Why is this time different? Lucas: That's the key question. I'd argue the difference is regulatory predictability. In 2021, the FTC under Lina Khan was aggressively challenging deals. That uncertainty killed a lot of potential mergers. Now, with a more business-friendly administration, companies feel confident that if they structure a deal properly, it'll go through. Luna: So you're saying the bull market isn't just about low rates and high stock prices. It's also about policy stability. Lucas: Exactly. And that's what makes this cycle distinct. The S&P 500 is at 7,365 — up significantly from last year. But the broader market is also showing strength in areas like mid-caps and small caps. The Russell 2000 is up one point two percent in the last five days, even as the Nasdaq dipped three percent. Luna: And that rotation matters for M&A. When smaller companies are doing well, they become attractive targets for larger firms looking to buy growth. Lucas: Precisely. And we're seeing that in sectors like cybersecurity and AI. Companies like CrowdStrike — ticker c r w d — are up slightly this week, but many others in the space are down. That creates valuation disparities that acquirers can exploit. Luna: It's interesting because the narrative around M&A has been so negative for years. People associate it with empire-building and destroyed value. But in a bull market, the pressure to deploy capital is enormous. Lucas: And that's where the tension lies. If you're a CEO sitting on a pile of cash and your stock is at a high, shareholders expect you to do something. But if you do the wrong deal, you destroy value. Luna: That's actually a good segue. You know, if our money conversations have helped you think about a decision differently, or if you appreciate that we dig into these angles without ads or hype, listener support is what keeps this show independent. Lucas: Yeah, it's a small thing that makes a big difference. You can find us at buy me a coffee dot com slash fexingo. No pressure, just if you value the ad-free deep dives. Luna: And speaking of value creation, let's get back to whether these megadeals actually pay off. Lucas, you mentioned Microsoft. Their track record with acquisitions is actually pretty good. Lucas: It is. LinkedIn, GitHub, Activision — those have worked out. But for every Microsoft, there's an aol time Warner. The data on M&A is sobering: something like 70 to 90 percent of acquisitions fail to create value for the acquirer's shareholders. Luna: So how do you separate the winners from the losers in this environment? Lucas: Look at the strategic rationale. If it's about buying technology or talent that's hard to build internally, that tends to work better. Microsoft's AI infrastructure deal fits that. It's about securing compute capacity, which is scarce and expensive. Luna: And you see that across the board. Companies like Alphabet and Amazon are also doing smaller bolt-on acquisitions in AI. They're not all megadeals. Lucas: Right. The market is rewarding disciplined acquirers. The ones that overpay for revenue growth get punished. Look at Palantir — ticker P-L-T-R — down 12.4 percent in the last five days. That's partly because investors are questioning the sustainability of their growth. Luna: So the bull market creates opportunity, but also traps. The key is to be selective. Lucas: Exactly. And I think that's the takeaway for listeners. When you hear about a big merger, don't just assume it's good. Ask: Is the acquirer paying a reasonable price? Is the strategic rationale sound? And is management disciplined enough to integrate the target? Luna: That's a great framework. We'll be watching how the Microsoft deal develops and what it says about the future of AI infrastructure. Lucas: And on that note, thanks for listening. We'll be back tomorrow with another episode.