September 2014 Issue
Since the onset of the financial crisis, global M&A activity has been difficult to predict. And with deal volumes and values fluctuating wildly, the record-setting 2007 seems a long way off.
However, the first half of 2014 was one of the most notable periods in recent M&A history. According to Dealogic’s ‘Global M&A review: First Half 2014’, worldwide M&A volume was up 41 percent in the first six months of 2014, compared with the same period last year. Indeed, M&A activity in H1 2014 accounted for the biggest first half of any year since before the crisis. Global M&A volume for the first six months of the year reached $1.83 trillion – an increase of over 40 percent on H1 2013’s total of $1.30 trillion.
Clearly, the first six months of 2014 have been impressive; however, the M&A market is no stranger to false dawns. So how sure can we be that this latest resurgence of deal making activity is the real thing? Encouragingly, the deal making explosion has not been confined to just one region or industry. Activity across the three biggest markets – the US, Europe and Asia – has been strong throughout the year. Firms across these markets have started to move away from the risk aversion and organic expansion embraced in the aftermath of the global financial crisis. The belief that significant levels of growth can be more easily purchased than built is returning to the markets. Accordingly, M&A deal volume has rebounded handsomely in 2014.
Volume from deals valued in excess of $10bn accounted for $363.2bn of total M&A in Q2 2014, 33 percent of global M&A volume for the period. This is an increase from 26 percent over the previous quarter. The 13 $10bn-plus deals announced in the second quarter of the year accounted for almost five times the amount announced in Q2 2013. This year’s figure represents the highest quarterly deal volume since the $436.2bn announced in Q2 2007. Furthermore, average deal size stood at $214m in H1 2014, the highest average deal size since the first half of 2007. However, deal activity in the first half of 2014 – some 354 deals globally – declined for the second consecutive H1 period across all regions.
Sector analysis
The healthcare sector was the most targeted industry in the first half of 2014, with total announced deals worth around $315bn. Driven by the $54.7bn hostile bid for global pharmaceutical firm Allergan by Canada’s Valeant Pharmaceuticals International, the health sector accounted for 17 percent of global M&A volume. Valeant’s offer, announced in late April, was the third largest M&A deal announced in the first half of the year, and the seventh largest healthcare deal ever recorded.
The technology sector also performed admirably during the first six months of the year, with activity reaching $144.4bn. The figure announced for the tech sector was up 55 percent from the same period in 2013, and was the highest recorded first half volume in the industry since the $298.4bn worth of deals recorded in 2000. In terms of target nations, US companies were the most sought after groups. US tech firms attracted combined bids of $81bn, the most of any country in this sector. Many of the H1 deals announced in the tech sector attracted significant media coverage – Facebook Inc’s $19.4bn bid for WhatsApp, announced in February, was the biggest tech sector deal in the first half of the year, both financially and in terms of global media attention.
“Global M&A volume for the first six months of the year reached $1.83 trillion – an increase of over 40 percent on H1 2013’s total of $1.30 trillion.”
In the UK, defence specialist Cobham’s $1.5bn proposed acquisition of Aeroflex Holding, announced in late May, is the largest announced bid for an American tech firm by a British company since mid-2000. The telecoms and real estate sectors accounted for much of the remainder of M&A activity between them.
Deal analysis
In terms of deal value, the average transaction in H1 2014 was valued at $214m, up considerably from the $146m recorded during the same period in 2013 and the highest half year average for an M&A deal since the first half of 2007. Deal averages in the second quarter exceeded the six month average, reaching $244m. Equally, the Q2 2014 figure was up considerably from the $179m average recorded in the previous quarter, making it the second highest quarterly average on record behind Q4 1999.
The upturn in global M&A activity has also been reflected in the number of withdrawn bids. According to Dealogic data, global withdrawn M&A volume reached $336.7bn in H1 2014, an increase of 39 percent from the same period the year before and the highest H1 withdrawn volume since 2008. The aborted Pfizer-AstraZeneca deal accounted for much of this. Pfizer’s $122.6bn hostile bid is the second largest withdrawn bid on record, behind BHP Billiton’s $147.8bn bid for Rio Tinto, withdrawn in November 2008. Excluding the Pfizer-AstraZeneca deal, all three major regions saw an overall decrease in withdrawn M&A volume during the first half of the year compared with the same period in 2013.
Regional breakdown
In terms of deal volume the US was the most targeted country globally. US targeted deal volume for the first six months of the year stood at $815.7bn, an increase of 56 percent from the same period last year which saw $521.4bn worth of deals. The H1 2014 figure was the highest first half total since 2007’s $964.4bn.
Hostile M&A activity has been increasing throughout 2014 and the US has seen much of that unsolicited interest. The value of US targeted hostile M&A in H1 2014 more than doubled over the same period in 2013, reaching $124.7bn up from $56bn. The level of US targeted hostile M&A activity was the highest first half total since the $137.8bn reached in 2008.
Around 19 percent of US targeted M&A activity was inbound in H1, representing a notable increase from the first half of 2013. Inbound activity almost trebled in the first half of the year compared with the previous year, rising from $54.7bn. The volume of inbound activity in the first half of 2014 was the highest total for seven years.
In many respects, US targeted M&A activity mirrored global trends with the healthcare, telecoms and technology sectors leading the way. The tech industry was the most targeted sector with over 1100 deals announced in the first half of the year. Tech accounted for $89.5bn of total deal volume. However, the healthcare sector saw the highest total volume of deals. The $54.7bn Valeant-Allergen bid topped the sector, which saw record H1 deal volume of $212.8bn, a 52 percent increase on H1 2013. The telecoms sector saw $165.1bn of targeted M&A activity.
Canadian targeted M&A volume totalled $50.3bn, an increase of 30 percent over H1 2013 which saw $38.8bn worth of deals. The most targeted Canadian sector was the oil and gas industry which totalled $16.5bn, much higher than the $4.1bn worth of activity in 2013. The utility and energy sector was the next most targeted Canadian industry, with H1 value of $6.1bn.
M&A activity in Europe was plentiful during the first half of 2014. European targeted M&A volume totalled $507.9bn, up 37 percent on 2013’s total of $416.7bn. The H1 total in 2014 was the highest half year deal volume since the second half of 2008. H1 2014 maintained the recent record of improvements in the first half of the year, marking the third consecutive year in which H1 has improved on the previous year’s total. Cross-border M&A in Europe generated announced deals worth $308.5bn in the first six months of the year. Accordingly, cross-border M&A activity was responsible for 61 percent of total Europe targeted M&A.
Hostile M&A activity was also prevalent in Europe. Globally, Europe saw the highest volume of hostile M&A action during the first half of the year. $203.2bn worth of hostile offers were made – the highest volume of unsolicited activity in the first half of any year since 2007, which saw $326.2bn worth of deals announced. The volume of those deals, however, is set against a backdrop of significantly reduced deal volume; the number of European hostile deals fell for the fourth consecutive half year period. Only eight deals were announced in H1 2014, down considerably on the 26 deals in the corresponding period in 2010.
The most targeted sector in Europe was healthcare, which saw $84.2bn worth of deals announced in H1. The combined value of those deals was $507.9bn, more than triple the total sum generated by the sector in the first half of 2013. The total for healthcare deals was actually the highest half year volume on record.
The Asia-Pacific region – excluding Japan – saw a 49 percent increase in targeted M&A in the first half of the year, reaching a record volume for H1. Asia-targeted M&A rose to $332bn, up from $229.9bn in H1 2013. Fifty-eight deals worth in excess of $1bn were announced in the region for a total combined value of $155.4bn. The most targeted nation in the region was China which saw 15 deals worth in excess of $1bn. In a break from other global markets trends, the real estate sector was the most targeted industry for the second consecutive H1 period. Real estate targeted M&A volume jumped 38 percent in 2014, reaching $56.9bn, up from $41.2bn in 2013. The tech sector was the second most targeted industry with total value doubling from $15.8bn in H1 2013 to $33.3bn this year. Chinese outbound M&A was up 18 percent year on year, reaching the highest ever H1 volume on record, at $41bn.
Japanese targeted M&A volume bucked the global upswing of activity. The country recorded its lowest first half year total for 12 years. The country saw just $35.1bn of targeted volume, a drop of 33 percent year on year. Deals worth $8.5bn were announced in the real estate sector, making it Japan’s most targeted industry, despite being at the lowest H1 volume since 2009. Outbound Japanese investment was much more prolific, as deal volume reached $35bn in H1, almost double the $18.7bn recorded during H1 2013. Japanese firms predominantly targeted companies in the US, with $25.3bn of the $35bn allocated to outbound deals aimed at American firms. Suntory Holding’s $16bn acquisition of alcohol manufacturer Beam accounted for more than 60 percent of H1’s total deal volume.
© Financier Worldwide
BY
Richard Summerfield