Global And Regional M&A: Q1-Q3 2015 by MergerMarket
- Seven years after the collapse of Lehman marks the possible end to the traditional M&A cycle. The question of whether 2015 will set a new record remains questioned as we approach the final quarter. Based on the activity rate for the first nine months of the year, 2015 could see total deal value reach an estimated US$ 3.83tn by the end of the year, representing a 4.5% increase on 2007’s peak of US$ 3.66tn. So far this year, deals valued at US$ 2.87tn are 21.1% higher than year-to-date 2014, and down just 12.1% from the whole of last year.
- China’s August Black Monday sent ripples through global stock markets, Europe is battling a migrant crisis, Greece received another bailout, and yet summer spirits have been high for deal making. The total value of global M&A has peaked for any summer period on Mergermarket record with deals valued at US$ 1.02tn, up 21.4% from Q3 2014. Eight of the top 20 deals were announced in the third quarter.
- Multi-billion dollar deals have been abundant this year with the value of mega-deals (>US$ 10bn) close to an all-time peak, accounting for 38.0% of global M&A, up 25.2% during 2014. The 43 mega-deals worth US$ 1.1tn announced during 2015 are 3.5% higher than 2006’s annual total at US$ 1.05tn, with just eight fewer deals and three months still left to go. Potential deals to end the year with a climax include Shire’s US$ 30.6bn offer for Baxalta, and AB InBev’s estimated US$ 102.2bn bid for SABMiller.
- Poised to approach targets but held back by a climate where strategic investors have the cash, confidence and competitive drive to win auction processes, private equity (PE) firms showed signs of expected activity in Q3. The third quarter’s US$ 110.9bn-worth of deals represent a second consecutive quarterly increase, up 40.7% compared to Q3 2014. Total PE buyout deal value during Q1-Q3 hit US$ 276.6bn, down 2.3% compared to the same period in 2014.
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United States M&A
- The Federal Reserve’s decision to keep interest rates at a record low will continue to fuel M&A activity. The US has attracted a record breaking 3,374 deals worth US$ 1.41tn to-date, already overtaking 2014’s total value (US$1.40tn) by 1%. M&A activity targeting the US accounts for 49.2% of global activity, just shy of the highest share reached in 2001 (49.3%).
- The country remains a draw for big-ticket deals, with eight of the top ten global deals to-date targeting US companies taking up a 76.8% share of its deal value. Bidders targeting the region seem willing to pay higher premiums for their deals, demonstrated by the average premia one day before purchase for inbound transactions jumping to 32.6% from 26% year-on-year.
- Domestic activity continues to grow as US companies take advantage of low borrowing costs, while outbound M&A has experienced a dip in activity. Domestic value has climbed 36% to US$ 1.05tn from US$ 768.9bn year-on-year, its highest Q1-Q3 value on record. Outbound activity, on the other hand, has seen 955 deals worth US$ 173.5bn, a 26.9% yearly decrease by value with 54 fewer deals.
- US companies have become less acquisitive abroad, with Canada in particular losing out on investment. Following a peak in activity in 2014, US deal making targeting its neighbor has dropped 59.9% from US$ 28.0bn to US$ 11.2bn year-on-year. The lack of investment was felt most acutely within Canada’s EMU sector with just US$ 1.5bn-worth of deals to-date, down 79.9% from US$ 7.7bn for the same period in 2014.
- The US government’s tightened regulation on tax inversion deals seems to have affected outbound deal value into Europe, with US$ 116.9bn-worth of deals representing a 30.5% decrease by value year-on-year. Ireland has been particularly affected, attracting just 23 deals worth US$ 2.2bn-worth of deals to-date, down from US$ 47.1bn for the same period in 2014. The UK however, has seen activity soar 39.7% by value year-on-year to reach US$ 38.2bn, the highest year-to-date value since 2011.
- Europe saw a striking recovery in terms of M&A during 2014 which has lost little of its momentum this year but lags behind the growth rates seen in the US and Asia-Pacific. The region’s total Q1-Q3 value reached US$ 657.7bn, representing a 4.2% decrease compared to year-to-date 2014, while Asia and the US have already exceeded 2014 totals and are on target to see record annual tallies.
- The UK and Italy are two countries bolstering European activity this year. Combined, they have both contributed the highest share towards the region’s M&A value at 46.6%, versus 21.6% during the whole of 2014. The UK alone, home to the fifth largest European deal on record this year (BG Group/Shell), recorded a 38.6% stake in Europe’s total – the US$ 254.1bn-worth of deals targeting the country represents a 63.4% increase from the whole of 2014, reaching the fourth highest annual total on record. In Italy, its value has already reached the second highest post-crisis value at US$ 52.2bn, up 35.9% from the whole of last year.
- One reason for Europe’s stable M&A environment comes from the modest level of inbound activity compared to 2014. Foreign investment increased slightly by 6.8% in Q1-Q3 2015 from the same period in 2014, but still reached the highest Q1-Q3 period on record at US$ 258.5bn. The UK was the most attractive country with a substantial 43.3% share of Europe’s inbound investment. UK assets have been the subject of interest from Asian firms spending on big-ticket deals this year, resulting in 69 deals valued US$ 40.9bn marking the second highest annual total for this investment on record.
- Europe’s most active sector in 2015 to-date, Energy, Mining & Utilities with US$ 115.2bn-worth of deals, is skewed by the BG Group/Shell transaction. Stripping this deal from the sector would result in the industry’s lowest valued annual total on record by far at US$ 34.0bn. Meanwhile the Industrials & Chemicals sector has reached a post-crisis high at US$ 81.6bn, up 12.5% from 2014.
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