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Perfect Storm Boosting Megadeals May Be Short-Lived

With Apple’s $3 billion acquisition of Beats Electronics and huge telecom and cable company sales in the works, a megadeal storm has hit techland. But one technical ingredient that has fueled big deals may begin to dry up: ultra-low interest rates.

We could already be seeing the effects of a gradual shift in the Federal Reserve's interest rate policies at the margins of the M&A market. The amount of money that companies borrowed to do acquisitions has grown since the end of the recession, from $162.6 billion in 2010 to $294.4 billion in 2013. Over that time bond issuance increased too, from 311 to 574 deals, according to data from S&P Capital IQ.

But as the Fed bought less government debt this year, effectively making money a little less cheap, M&A-related debt issuance dipped by about 17% in the first half of 2014 versus the first half of 2013.

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A rising rate environment gives companies at least one good reason to get big transactions underway sooner rather than later. That’s likely on the minds of many bankers pushing deals at the Allen & Company conference in Sun Valley.