Business

Global & Regional M&A: 1Q17 – Lazard Leads

Mergermarket has released its Global M&A roundup for the first quarter of 2017 (Q1), including its league tables for financial advisors.

A few key findings include:

  • Global dealmaking so far has remained resilient in the face of an uncertain year, with 3,554 deals worth US$ 678.5bn announced in the first quarter representing an 8.9% increase in value compared to the same period last year (4,326 deals, US$ 622.9bn). Due to ongoing uncertainty regarding upcoming European elections, transactions will be viewed as more precious, with larger sums being invested in fewer deals. This is reflected in the average size of disclosed value deals (US$ 403.4m), which reached its highest Q1 level on Mergermarket record (since 2001) due to nine recorded mega-deals (>US$ 10bn), up from eight in Q1 2016
  • A stand out trend has been the number of Consumer mega-deals announced, with a record three deals valued over US$ 10bn resulting in the sector deal value (395 deals, US$ 136.1bn) reaching its highest valued Q1 since 2008 (497 deals, US$ 180.2bn). This rebound in activity follows on from a slow 2016, where just one mega-deal (Danone/Whitewave Foods) was announced for the whole year. Deals such as BAT/Reynolds (US$ 60.8bn), Luxottica Group/ Essilor International (US$ 25.4bn) and Mead Johnson/Reckitt Benckinser (US$ 17.8bn) caused Q1 value to already account for 61.6% of total 2016 Consumer activity (2,181 deals, US$ 220.9bn)
  • For the US, Energy, Mining & Utilities (EMU) was the quarter’s top sector, continuing to drive dealmaking and registering a 28.4% US market share. EMU also hit a record Q1 value of US$ 85.3bn with 86 deals, a 71.5% increase in value over Q1 2016 (US$ 49.8bn) despite a fall in deal count by nine. The Energy subsector (US$ 76.8bn) accounted for most of the rise with 90.1% of EMU market share, while Mining had 2.2% (US$ 1.9bn), and Utilities 7.7% (US$ 6.6bn)

Regional M&A comparison

Global & Regional M&A

Global

  • Global dealmaking so far has remained resilient in the face of an uncertain year, with 3,554 deals worth US$ 678.5bn announced in the first quarter representing an 8.9% increase in value compared to the same period last year (4,326 deals, US$ 622.9bn). Due to ongoing uncertainty regarding upcoming European elections, transactions will be viewed as more precious, with larger sums being invested in fewer deals. This is reflected in the average size of disclosed value deals (US$ 403.4m), which reached its highest Q1 level on Mergermarket record (since 2001) due to nine recorded mega-deals (>US$ 10bn), up from eight in Q1 2016.
  • A stand out trend has been the number of Consumer mega-deals announced, with a record three deals valued over US$ 10bn resulting in the sector deal value (395 deals, US$ 136.1bn) reaching its highest valued Q1 since 2008 (497 deals, US$ 180.2bn). This rebound in activity follows on from a slow 2016, where just one mega-deal (Danone/ Whitewave Foods) was announced for the whole year. Deals such as BAT/Reynolds (US$ 60.8bn), Luxottica Group/ Essilor International (US$ 25.4bn) and Mead Johnson/Reckitt Benckinser (US$ 17.8bn) caused Q1 value to already account for 61.6% of total 2016 Consumer activity (2,181 deals, US$ 220.9bn).
  • A reversal of fortunes was seen for Chinese dealmakers investing abroad, who after a record-breaking 2016 have had their ambitions thwarted by strict regulation imposed on transactions valued over US$ 2bn. Chinese dealmakers invested in 75 deals worth US$ 11.8bn outside their borders in the first quarter, dropping 85.6% in value compared to Q1 2016 (96 deals, US$ 82bn) and 72.1% compared to Q4 (87 deals, US$ 42.3bn) to reach its lowest quarterly value since Q3 2014 (US$ 9.0bn) and deal count since Q1 2015 (61).
  • Political uncertainty in Europe appears to have affected activity from international dealmakers pursuing deals in the region. Largely as a result in the previously mentioned drop in Chinese activity, Q1 inbound M&A (262 deals, US$ 71.7bn) dropped 39.0% by value compared to Q1 2016 (315 deals, US$ 117.5bn), marking the lowest Q1 since 2014 (US$ 55.8bn). Despite this, US dealmakers had a strong quarter investing into the continent, with 150 deals worth US$ 55.7bn up 16.0% by value compared to Q1 2016 (176 deals, US$ 48bn), posting its strongest Q1 deal value since 2008 (138 deals, US$ 112.6bn).

Global & Regional M&A

Global & Regional M&A

Europe

  • Europe has followed global M&A trends in 2017, posting high values and low deal count as dealmakers become more strategic and selective. The European M&A value has dipped 1.8% to US$ 170bn (1,346 deals) compared to Q116 (US$ 173.2bn) while the number of deals has hit its lowest level since 2013 (1,341 deals). Global share of M&A value has fallen to 25.1% from 27.8% in Q1 ’16. ‘Fewer but larger deals’ appears to be the mantra among dealmakers as the average size of disclosed value deals in Q1 rose to US$ 379m, up from US$ 325m during 2016 – reaching its highest point on Mergermarket record (since 2001), following three megadeals (>$10bn).
  • With political uncertainty rife throughout Europe, inbound investment appears to have taken a hit – reducing 55.7% by value in comparison to Q4 ’16. The first quarter has seen 262 deals worth US$ 71.7bn – the slowest by value since 2014 (US$ 55.8bn, 291 deals) amid the backdrop of the start of Brexit negotiations and upcoming elections in France and Germany. In comparison to Q1 ’16 the UK (US$ 13.1bn, 88 deals) and France (US$ 1.1bn, 13 deals) have seen large drops in investment from outside Europe, down 29.5% and 72.6% respectively, while German activity remains strong (US$ 9.1bn, 38 deals), growing 58.8% by value.
  • Private Equity buyouts have reached US$ 25.8bn (263 deals), up by 56.8% in comparison to Q1 ‘16 (US$ 16.5bn, 273 deals). Increased competition as a result of abundance of dry powder appears to be pushing buyout valuations up, with five deals valued at over US$ 1bn recorded. Private equity activity in Europe has seen a transatlantic surge, with US PE firms conducting six of the top ten investments so far in 2017, including Advent International’s hostile bid for STADA, worth US$ 5.1bn.
  • Industrials & Chemicals continues to lead the way by deal count, with 280 transactions announced in the sector so far this year. Stone Canyon Industries’ US$ 2.3bn acquisition of Mauser Group was the largest deal seen in the sector in Q1. As a result of the US$ 29.6bn acquisition of Actelion by Johnson & Johnson, the Pharma, Medical & Biotech sector has been the most targeted by value at US$ 38.5bn (95 deals), a 132.7% increase in comparison to the start seen in 2016.

Global & Regional M&A

Global & Regional M&A

US

  • As geopolitical uncertainty continues to wash over the globe, US M&A values remained strong through the first quarter, rising 19.4% to US$ 300.2bn with 1,116 deals over Q1 2016’s US$ 251.3bn with 1,256 deals. However, the Q1-to-Q1 drop in deal count of 140 was the largest since 2009 (-461). Political anxiety over an unpredictable White House saw dealmakers cut back on activity while simultaneously placing all bets on transactions that made it to the signing table via high price tags: average disclosed deal size rose 51.8% in Q1 2017 to US$ 723.8m from US$ 476.9m the same quarter last year; if one were to remove the quarter’s top deal, British American Tobacco’s US$ 60.7bn bid for the 57.8% stake in Reynolds American it did not already own, the average still rose 21.4% to US$ 578.9m.
  • Energy, Mining & Utilities (EMU) was the quarter’s top sector, continuing to drive US dealmaking and registering a 28.4% US market share. EMU also hit a record Q1 value of US$ 85.3bn with 86 deals, a 71.5% increase in value over Q1 2016 (US$ 49.8bn) despite a fall in deal count by nine. The Energy subsector (US$ 76.8bn) accounted for most of the rise with 90.1% of EMU market share, while Mining had 2.2% (US$ 1.9bn), and Utilities 7.7% (US$ 6.6bn).
  • Consumer was an extremely close second (93 deals, US$ 85bn) to EMU, capturing 28.3% of US market share while also jumping 539.6% in value compared to the same period in 2016 (127 deals, US$ 13.3bn). The sector additionally claimed the top two US transactions: the aforementioned BAT/Reynolds deal and Reckitt Benckiser Group’s US$ 17.8bn bid for Mead Johnson & Company, together worth 92.4% of total US Consumer value. Moreover, both had UK-based bidders, which had perhaps looked toward well-regarded US companies over domestic assets, whose long-term growth remains uncertain due to Brexit.
  • In a notable departure from last year’s record activity, China’s bids for US companies fell sharply in Q1. Inbound M&A from the former plunged 86.6% in total deal value to US$ 3.5bn following the Chinese government’s crackdown on capital leaving its borders as well as heightened scrutiny by the Committee on Foreign Investment in the US (CFIUS). Deal count also fell from its Q1 record of 26 transactions in 2016 to 17 this year, though this still represented the second-highest number of US acquisitions by China on Mergermarket record (since 2001).

Global & Regional M&A

Global & Regional M&A

Central & South America

  • Still plagued by political scandal and economic woes, Central and South America saw its modest recovery at the end of 2016 turn into a 35.4% fall in M&A value in the first quarter to US$ 13.1bn with 111 deals from Q4 2016 (173 deals, US$ 20.3bn). Moreover, Q1 2017’s total value accounted for just 1.9% of M&A globally. However, total value was 17.5% higher than Q1 2015’s US$ 11.2bn, when the region had been sharply hit by the initial plunge in the price of oil, Central and South America’s prime commodity.
  • Nevertheless, despite pervasive corruption in dominant economy Brazil and threats from neighbouring US against Mexico, dealmaking activity in Central and South America’s two most active economies rose slightly in Q1. Brazil recorded US$ 8.1bn total with 64 deals, a 20.9% increase in value over Q1 2016 (69 deals, US$ 6.7bn). Deal count decreased by five, reaching its lowest Q1 figure since 2010 (58 deals). Mexico grew 251.2% in value to US$ 3.4bn with 11 deals over Q1 2016 (19 deals, US$ 954m) and was home to the region’s top deal, Mexico-based AC Bebidas’ US$ 2.7bn bid for Arca Continental’s beverage businesses in Mexico, Argentina, Peru, and Ecuador as well as Coca-Cola Southwest Beverages, which came from the Consumer sector.
  • The above transaction led Consumer to finish as Central and South America’s top sector, accounting for 33.2% of regional value. Total value for the quarter rose 247.3% to US$ 4.4bn with 17 deals over Q1 2016 (22 deals, US$ 1.3bn). Usually the region’s dominant sector, Energy, Mining & Utilities (EMU) was a close second with US$ 4.2bn and 19 deals, a 28.7% drop in value compared to Q1 2016’s US$ 5.9bn with the same number of deals.
  • Inbound M&A into Central and South America fell 36.8% in value to US$ 5.4bn with 69 deals from Q1 2016 (65 deals, US$ 8.6bn). Decreased activity from the US and Canada were largely responsible for the drop. Altogether the two countries had accounted for 43% of inbound activity for the whole of 2016, with Canada having set its own record for spending on companies in the region. By a Q1-to-Q1 comparison, US deal value fell 55.1% to US$ 766m after fiery populist rhetoric from the White House, while Canada dropped 80.7% to US$ 913m.

Global & Regional M&A

Global & Regional M&A

Asia-Pacific (excl. Japan)

  • The Asia-Pacific region (excl. Japan) has experienced a relatively slow start to the year compared to two previously strong years. There were 697 deals worth US$ 124.8bn announced during the first quarter, down 10.4% by value compared to Q1 2016 (817 deals, US$ 139.3bn), with 120 fewer deals. Despite this slowing activity, regional dealmaking still achieved its third highest valued Q1 on Mergermarket record (since 2001). As seen in 2016, dealmaking was driven by transactions between Asian countries, with intraregional M&A accounting for 93.3% of total deal value – the highest Q1 share on record.
  • The largest announcement of the quarter – Vodafone Group’s US$ 12.7bn sale of Vodafone India to Idea Cellular – saw two Indian firms join forces. The merger of equals marks the largest deal conducted by an Indian company on record, surpassing Tata Steel’s US$ 11.9bn takeover of Corus Plc (now known as Tata Steel Europe). The Vodafone deal bolstered Indian Q1 M&A value, with 76 deals worth US$ 18.0bn announced standing 95.2% ahead of Q1 2016 (110 deals, US$ 9.2bn) by value, despite trailing by 34 deals.
  • New regulation imposed by the Chinese government to restrict large outbound deals was swiftly and inevitably followed by a sharp drop in Chinese dealmakers investing abroad. There were 75 Chinese outbound deals worth US$ 11.8bn announced in the first quarter of the year, a steep drop from both Q1 2016 (96 deals, US$ 82bn) and Q4 2016 (87 deals, US$ 42.3bn). This, coupled with increased protectionism from the US and UK may signal the end of China’s outbound acquisition spree, at least in the short-term.
  • Chinese buyout activity has seen an uptick in deal value, with 19 transactions worth US$ 6.3bn announced so far this year reaching its second highest first quarter on record following 2016 (US$ 13.3bn). Tech has continued to be the most targeted sector, as innovation continues to disrupt traditional industries and drive M&A. So far this year, five buyouts taking place within the Tech sector worth US$ 2.4bn accounted for 37.8% of total Q1 buyout value targeting the country.

Global & Regional M&A

Global & Regional M&A

Japan

  • Following on from a strong 2016, Japanese M&A activity has failed to reach its potential so far in 2017. There were 95 transactions worth US$ 8.6bn targeting the country in Q1, down 50.6% by value compared to the same period in 2016 (116 deals, US$ 17.4bn), with 21 fewer deals. Despite this slow start to the year, Japanese M&A is expected to see an upswing in activity during 2017, as companies, and mainly family-run businesses, actively seek out deals as countermeasures against fierce global competition, according to Mergermarket intelligence.
  • The deal landscape in Q1 was characterised by bold corporates acquiring abroad, seen in Takeda Pharmaceuticals’ US$ 4.9bn acquisition of US-based Ariad Pharmaceuticals, as well as Softbank Group’s US$ 3.3bn purchase of US private equity firm Fortress Investment. The US was the investment destination of choice for Japanese dealmakers, with 24 deals worth US$ 10.3bn increasing 80.1% by value compared to Q1 2016 (25 deals, US$ 5.7bn) to reach the highest quarterly deal value since Q3 2015 (US$ 10.8bn).
  • In contrast to China, slow economic growth coupled with record low interest rates in Japan will serve to drive outbound M&A activity in 2017. Last year saw a record deal count of Japanese companies acquiring abroad, with 321 deals worth US$ 93.1bn announced. So far in 2017, 65 deals worth US$ 14.7bn representing a 64.1% value increase compared to the same period in 2016 (US$ 9.0bn, 66 deals), potentially signalling an active year ahead.
  • Industrials & Chemicals was the most actively targeted sector in terms of deal count, with 27 transactions just three behind Q4 2016’s record 30 announcements, despite US$ 2.8bn-worth of deals decreasing 31.0% by value year-on-year. Further activity is expected within the agrochemicals sub-sector, with Japanese firms pursuing consolidation in response to the recent series of global megamergers within the industry, according to Mergermarket intelligence, as well as agricultural reforms instituted by the Japanese government.

Global & Regional M&A

Global & Regional M&A

Africa & Middle East

  • M&A activity in the Middle East & Africa (MEA) region has seen its strongest start on Mergermarket record (since 2001) with US$ 28.3bn over 81 deals, despite the lowest quarterly deal count since Q3 2010 (66 deals). This quarter represents a 192.2% increase by value compared to 109 deals worth US$ 9.7bn in Q1 2016. The region has seen four deals over US$ 1bn, the most at this point in the year since 2013 when the region was on par with four. MEA’s global share of M&A, at 4.2% grew by over 50% compared to 2016’s full year figure of 2.7%.
  • The first quarter saw the third largest deal into the region on Mergermarket record with Intel’s US$ 14.7bn acquisition of Mobileye, who develop the technology behind driverless cards. MEA only saw one megadeal (> US$ 10bn) in 2016 with the US$ 14.8bn tie-up between NBAD and First Gulf Bank. The Mobileye deal represents the largest deal on record targeting Israel, ousting Chonquing New Century Cruise’s US$ 4.5bn acquisition of Playtika in July.
  • In 2016, after a stuttering start amid uncertainty surrounding oil prices, M&A activity in the Energy, Mining & Utilities sector regained ground to finish just 0.5% behind 2015’s value. This year has seen the sector pick up where the end of 2016 left off, and has been the most targeted sector by deal count with 19 deals worth US$ 7bn. This compares to US$ 118m across seven deals in Q1 2016. The largest deal in the sector so far this year saw Exxon Mobil take a 25% stake in Eni’s Rovuma gas field in Mozambique, worth US$ 2.8bn.
  • The region has seen a surge in cross-border valuations in 2017 with increases in both inbound and outbound activity. Deals conducted by bidders based outside of MEA, which have reached US$ 24.3bn from 41 deals, have seen its strongest quarter since Q4 2007 (US$ 26.2bn, 53 deals) after four deals valued at over US$ 1bn. Meanwhile, outbound activity saw a 287.4% rise compared to Q1 2016 (US$ 2bn, 46 deals) to US$ 7.7bn (34 deals) following Saudi Aramco’s US$ 3.9bn acquisition of US-based Motiva Enterprises.

Global & Regional M&A

Global & Regional M&A

Article by MergerMarket

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