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S merger activity back at the trillion-dollar level

What may have been the most auspicious deal of late was not the biggest or the most
groundbreaking of mergers. It was just one that took a little gumption.

In September, Applied Materials AMAT, a California maker of semiconductor manufacturing
equipment, agreed to acquire its rival, Tokyo Electron, in a deal valued at more than $9 billion.

As an all-stock, cross-border deal, it was the kind of tricky merger that telegraphed executives'
confidence and an appetite to make even slightly risky deals.

''It was when the light bulb went on,'' a senior deal maker said.

Are the animal spirits finally returning to the corporate world?

(Read more: Look for dealmaking to pick up in 2014, pro says )

In the United States, they appear to be. While global deal-making was basically flat for a fourth
consecutive year, annual volume in the United States was up 11 percent in 2013 compared with the
previous year, according to Thomson Reuters.

Companies from New York to San Francisco announced more than $1 trillion worth of deals during
the year, the most since the financial crisis. That led the United States to account for 43 percent of
all deals worldwide, the biggest proportion since 2001.

What's more, activity picked up over the final two quarters, with volumes rising sharply from the
first six months of the year.

''There's a feeling of a more stable backdrop that executives think will be with us for the foreseeable
quarters,'' said Blair W. Effron, co-founder of Centerview Partners, an independent investment bank.
''I didn't have a sense of that at the end of 2012 or 2011.''

And with markets buoyant thanks to relative stability in Washington and around the globe, as well as
moderate growth from corporations, the bankers and lawyers that advise companies on mergers
and acquisitions are more optimistic than they have been in years.

''From a macroeconomic perspective, we have a stronger economy, we have Congress behaving
more responsibly, and we have all appearances of stability at the Fed,'' said Scott A. Barshay, head of
the corporate department at Cravath, Swaine & Moore, one of the top law firms on Wall Street.
''C.E.O.'s can look forward and say, 'I don't see any near-term economic bumps.' ''

This stability is leading executives and directors to return to the business of plotting transformative
deals that might take months or even years to execute, and even longer to pay dividends.

''Boards are thinking about their goals not just tactically in a one-year 2014 increment, but more
strategically for the longer term,'' Mr. Effron said. ''Companies are looking further down the field.''

Centerview worked on three of the biggest deals of the year, advising H. J. Heinz on its $23 billion
sale to 3G Capital and Berkshire Hathaway BRK.A, General Electric GE on its sale of the remainder of
NBCUniversal to Comcast CMCSA for $16.7 billion, and Silver Lake Partners on its role in the buyout
of Dell for $24.9 billion.

Other boutique investment banks like Centerview continued to secure advisory roles on the biggest
deals of the year. LionTree Advisors, a small firm focusing on media deals, advised Liberty Global on
its $16 billion deal for Virgin Media, while Moelis & Company advised Omnicom on its $35.1 billion
merger with Publicis, which was advised by Rothschild.

Even the largest deal of the yearVerizon Communication's VZ $130 billion purchase from Vodafone
of the stake in Verizon Wireless it did not already ownhad upstarts among the big banks like
Goldman Sachs GS and JPMorgan Chase JPM. Both Guggenheim Securities and Paul J. Taubman, the
former Morgan Stanley banker who helped strike the original deal, advised Verizon.

(Read more: This Chinese tycoon wants to buy NYT )

Yet the big banks continued to advise on most deals, and collect the most fees. Goldman, followed
by JPMorgan, led advisers in deals by volume both in the United States and worldwide last year. The
two banks also collected the most fees for their work, earning an estimated $1.5 billion and $1.3
billion for their advisory roles, according to Dealogic.

The Verizon deal with Vodafone, one of the largest transactions ever, had been expected for years.
But with interest rates low because of the Federal Reserve's sustained stimulus program, Verizon
was finally compelled to act before rates began creeping up. (That advantage was underscored when
Verizon sold a record $49 billion of investment-grade corporate debt at once to help pay for the

''This era of low interest rates has encouraged companies to consolidate and clean up some
structural inefficiencies,'' said Michael Carr, head of Goldman Sachs's mergers and acquisitions
group in Americas.

Still, while many factors encouraged merger activity, one phenomenon that once drove deals
activist investorsbecame something of a depressant. Activists were once feared for their ability to
shake up company, spurring it to make deals with competitors or test the market for a sale.

(Read more: Why this takeover candidate could still be undervalued )

To some degree that was still the case. Activists occasionally prodded smaller companies to sell
themselves, and in other cases encouraged big conglomerates to dispose of noncore units. Nelson
Peltz, for example, pushed for a big spinoff at DuPont DD.

''Activism has been a positive influence on some companies, making them more introspective,'' said
Chris Ventresca, co-head of global mergers and acquisitions at JPMorgan. ''Companies are realizing
that if they don't look at what is core and noncore, someone will do it for them.''

But by and large, activists focused more on capital allocation than on deals. Moreover, many
advisers said that executives now feared that spending money on a deal rather than returning it to
shareholders would invite activist scrutiny.

''Companies that have activists in their stock generally do not do acquisitions,'' Mr. Barshay of
Cravath said. ''The activists are completely focused on returning capital to shareholders.''

Regardless, United States companies forged ahead with deals, and were often rewarded when they
did. Another factor that emboldened companies to make more deals is that for the most part, the
markets rewarded deals that immediately added to earnings. According to Goldman Sachs, in about
two-thirds of the deals in 2013, the buyer's stock price increased on average more than 5 percent on
a sustained basis.

''It's giving people confidence that despite the scrutiny of activist investors, companies can really add
value through M.&A.,'' Mr. Carr of Goldman said.

Looking ahead to 2014, deal makers say companies could be prompted to make deals for a number
of reasons.

One is that with stock markets riding high, companies will probably feel pressure to demonstrate
sustained growth to validate their share prices.

More from NYT.com:

A Stock Exchange Expands Its Global Reach
For Stocks, an Amazingly Good Year
Why Older Technology Companies May Attempt Desperate Deals
''The pressure is building for companies to justify their trading multiples,'' Mr. Ventresca of
JPMorgan said. ''It will be hard to deliver that organically, so you have to look for inorganic growth.''

Certain sectors could also set off rounds of megadeals.

Last year, many companies in the telecommunications industry made deals. Besides the Verizon and
Vodafone megadeal, SoftBank took control of Sprint S in a $21.6 billion deal, and T-Mobile TMUS
and MetroPCS announced a multibillion-dollar reverse merger.

While some telecommunications activity could continue, with Sprint reportedly looking at a bid for
T-Mobile, 2014 could have a spate of cable television deals. Charter Communications CHTR, backed
by John C. Malone's Liberty Media LMCA, is preparing to make an offer for Time Warner Cable TWC.
But Comcast, the nation's largest cable operator, is considering a spoiler bid.

If either deal happens, it could kick off a wave of consolidation of both cable operators