M&A activity reaches seven year high

March 2015  |  FEATURE  |  MERGERS & ACQUISITIONS

Financier Worldwide Magazine

As predicted, 2014 was a bumper year for merger and acquisition (M&A) activity, with global values for deals hitting their highest levels since 2007.

According to data from Thomson Reuters, global deal values for the year reached $3.27 trillion, an increase of 40 percent on the same period in 2013, and the highest level recorded since 2007’s $4.12 trillion. The Thomson Reuters Full Year 2014 Mergers and Acquisitions Review noted that there were more than 40,000 M&A deals announced in 2014, up 6 percent on 2013.

The values achieved over the last year are even more impressive when considered alongside pre-crisis deal values in 2007. Those deal values were achieved at the height of the leveraged buyout boom, which saw a number of private equity (PE) acquirers load firms with unmanageable levels of debt.

A number of industries powered the resurgence in deal values. Most notably, firms operating within the consumer and healthcare sectors were active acquirers. Many of the announced deals last year saw boards utilising shares rather than debt to fund their transactions.

2014 also saw a glut of large deals announced, with 95 announced transactions valued at $5bn or more. This figure more than doubled the value and number of large cap deals announced in 2013. These larger deals were a key driver for M&A activity last year, particularly given that the overall number of M&A transactions announced globally increased by only 6 percent on 2013.

Among the year’s announced mega mergers, some of which are still pending US antitrust regulatory review at the time of writing, were Comcast Corporation’s $70.67bn deal for Time Warner Cable, AT&T’s $67bn purchase of rival DirecTV and pharmaceutical firm Activis’ $66bn acquisition of fellow drug manufacturer Allergan Inc for $66bn. These noteworthy transactions contributed significantly to 2014’s announced deal totals.

Targeted areas

US companies were attractive propositions in 2014, according to Thomson Reuters data. Ten of the year’s 15 largest acquisitions were for companies based in the US. Accordingly, US deal volume increased 51.4 percent on 2013, reaching $1.53 trillion.

European firms were also targeted by acquirers. Europe saw the highest share of M&A deals by volume recorded among all regions, with 5266 transactions worth $792bn announced at the end of November – 37 percent of the global total of 14,092. By comparison, North America saw 4832 deals during the same period, or 34 percent of the total number of global transactions.

Chinese firms were the most active acquirers in Europe. While some were focused on purchasing established brands where market knowledge could be easily exported to Chinese markets, others targeted distressed assets in southern Europe and medium-sized manufacturers in northern Europe’s industrial heartland, Germany. Total deal value for European targets reached $869.8bn in 2014, up around 5 percent on 2013’s totals. For its part, the Asia Pacific region also experienced a strong resurgence, recording its best year since 1980.

Deals continued to flow across the Atlantic Ocean, with European and US firms both looking to acquire assets in one another’s regions. US firms, particularly those in the pharmaceuticals sector, pursued controversial ‘inversion’ deals. Though changes have been made to US tax regulations in order to curb future inversions, a number of significant deals were completed in 2014.

A dramatic increase in cross-border M&A activity was another notable feature of 2014, reaching $1.3 trillion, or 37 percent of overall M&A. This was a huge increase of 78 percent over 2013.

The usual rush to get deals completed before the end of the year re-materialised in Q4 2014. The total value in the fourth quarter was $922.5bn, an increase of 7 percent on the same period in 2013 and the strongest final quarter for dealmaking since 2006.

In terms of the most targeted sectors, media and entertainment deal values rose 100 percent over 2013, to $308.5bn. The healthcare sector was up 94 percent. Energy and power deals grew 66 percent compared with the previous year, while telecoms performed less impressively, the only industry to experience a year on year decline. With slightly over $162bn worth of announced deals, telecoms M&A was down 37 percent.

Overall, 2014 was a buoyant year for M&A activity, with companies seeking out and completing deals across myriad sectors. Whether the momentum gained last year can be carried over into 2015 remains to be seen. As oil prices continue to slump and various geopolitical risks – such as the burgeoning Russian economic crisis – persist, it is increasingly likely that corporate leaders may become risk averse and begin to shy away from big ticket M&A deals going forward.

© Financier Worldwide

BY

Richard Summerfield