LONDON (Reuters) — A string of large
transactions drove the value of global mergers and acquisitions
(M&A) activity up by 54 percent in the first quarter compared to the
same period last year, reflecting greater deal-making confidence
among chief executives.
The value of worldwide announced deals totaled $710 billion in the
first three months of the year, according to Thomson Reuters data,
which includes competing bids for Time Warner Cable and SFR. Global
M&A is up 35 percent excluding these competing bids.
Almost half of the M&A pot came from deals worth $5 billion or more.
The number of deals however dropped by 14 percent, the slowest
year-to-date period for dealmaking by number of deals since 2003.
This means fewer but larger deals have been driving activity so far
this year.
"There have been several transformational deals and companies have
made some bold and aggressive moves. I'm hopeful that we'll see more
of this in 2014.", said Hernan Cristerna, co-head of global M&A at
JP Morgan.
"We've seen something of a return of animal spirits."
Comcast Corp trumped Charter Communications with a bid valuing Time
Warner Cable at $70.6 billion in enterprise value, the largest
transaction in the works since January.
Earlier this year, Ireland-based Actavis. the world's second-largest
generic drugmaker, spent $23.8 billion to buy U.S. specialty
pharmaceuticals firm Forest Laboratories, its largest acquisition
ever.
Facebook also made its boldest M&A move, paying $19.4 billion for
its acquisition to grab mobile messaging services firm Whatsapp.
While the U.S. continues to stage most of the M&A action with 51
percent of the market by value of deals so far this year, Europe and
Asia-Pacific are gradually catching up with 24 percent and 16
percent of the market. Asia-Pacific had the strongest start of the
year on record with announced deals worth $113 billion and 1,751
transaction, according to Thomson Reuters data.
M&A activity in France rose by 673 percent, boosted by SFR and
L'Oreal, two of the biggest deals so far this year.
Morgan Stanley moved into the top position for worldwide M&A
advisors during the first quarter, boosted by its role advising
Japan's drinks firm Suntory on its $16 billion acquisition of U.S.
bourbon maker Jim Beam.
NO SURGE YET
"We are starting to see a slow but steady growth in large deals
which implies an increase in confidence.", said Henrik Aslaksen,
Global Head of M&A at Deutsche Bank.
"These have a big impact on the market but can skew the true
picture. There is no M&A surge yet.," he said, comparing current
activity to levels before the global financial crisis.
Deals between 1 billion and 5 billion dollars, which usually
constitute the sweet spot and are a barometer for the health of the
M&A market, are up 17.5 percent with 91 transactions so far this
year.
"The pipeline at the moment looks healthier than the number of deals
being announced, which means getting deals done remains difficult,"
said Jonathan Rowley, co-head of M&A in Europe, Middle East and
Africa at UBS.
More generally, high valuations in the equity market and regulatory
risk continue to hold back a stronger uptick in M&A activity, which
is still down 17 percent compared to the first quarter of 2007 when
M&A peaked before the crisis, according to TR data.
"The number one hurdle is valuation as the pricing of assets is
reasonably full and makes it difficult for bidders to pay a premium
to the share price," said Rowley.
Regulatory risk is especially threatening Telecoms, Media and
Technology (TMT), the most active sectors for M&A at the moment with
a combined 39 percent market share according to TR data, as
anti-trust watchdogs around the world seek to protect customers
against potential cartels.
AT&T's blocked acquisition of Deutsche Telekom's U.S. unit by the
U.S. competition authority is still clouding prospects of greater
consolidation in the U.S. telecom market. In Europe, the European
Commission's verdict in May over Hutchison's acquisition of O2
Ireland and Telefonica's move to buy E-Plus from KPN in Germany is
likely to set the mood for in-market consolidation in the industry.
"The challenge for M&A generally is that deals have such a long
gestation period and it only takes one bump in the road to slow
things down.", said Greg Lemkau, co-head of global M&A at Goldman
Sachs.
"But while there will always be geopolitical or macro risks, the
risk that is more acute to M&A right now is the regulatory
environment."
THE DREAM DEAL
With the main ingredients for M&A now in place — cheap funding,
cash-rich corporates, a relatively stable macroeconomic environment
and strong equity market -, those having the guts to complement
organic growth through acquisitions have so far been rewarded on
average.
"It's an opportune time for CEOs to think about their ‘dream deal'",
said Lemkau.
Another encouraging sign is that most acquirers of the biggest
transactions so far this year saw their share price rise on the back
of their deals, except Facebook.
"Immediate stock price reaction is something people are focused on,
perhaps overly so, but it does influence the psyche of boards and
CEOs. I don't think this recent wave of positive stock price
reaction is driving companies to do deals solely for that reason,
but it has reduced one of the key anxieties of an acquirer," said
Lemkau.
Finally, activist investors targeting underperforming companies are
expected by bankers to aim at more firms in the United States and
even in Europe following recent successes.
Billionaire activist investor Carl Icahn pocketed $600 million
earlier this year after his successful push within Forest
Laboratories to sell to Actavis.
Recent companies targeted by activist investors include UK retailer
Morrisons, UK transport companies Firstgroup, Swiss bank UBS, U.S.
computer network equipment Juniper Networks, eBay, Abercrombie and
several oil & gas majors.
While importing the activist model from the United States to Europe
is unlikely to bring the same results because boards and executives
are more closely aligned in Europe, targeted activism handled behind
closed-doors could well lead to more M&A.
"Activist investors and funds are increasingly targeting Europe;
obviously, they are adapting their approach to the European
corporate landscape," said Yoel Zaoui, co-founder of Zaoui & Co
advisory boutique, who recently advised L'Oreal and Peugeot
alongside his brother Michael on two of the largest transactions in
Europe since the beginning of the year.
(Reporting by Sophie Sassard; editing by Keiron Henderson)
The value of worldwide announced deals totaled $710 billion in the
first three months of the year, according to Thomson Reuters data,
which includes competing bids for Time Warner Cable and SFR. Global
M&A is up 35 percent excluding these competing bids.
