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A total of $1.2tn spend greets US tax reform and faster European economic growth
Global mergers and acquisitions had their strongest start ever in the first quarter of 2018, totalling $1.2tn in value, as US tax reform and faster economic growth in Europe unleashed many companies’ dealmaking instincts.
Strong equity and debt markets and swelling corporate cash coffers also helped boost the confidence of chief executives, convincing them that now is as good a time as ever to pursue transformative mergers, dealmakers said.
“The clarity on tax has unclogged some of the M&A activity that was strategically imperative, but companies were waiting for the right financial timing,” said Anu Aiyengar, at JPMorgan Chase.
While the value of M&A deals globally increased 67% year-on-year in the first quarter of 2018, the number of deals dropped by 10% to 10,338, preliminary Thomson Reuters data show, reflecting how deals on average are getting bigger.
Among the largest deals clinched this quarter were US health insurer Cigna Corp’s $67bn deal to acquire pharmacy chain Express Scripts Holding and German utility EON SE’s $38.5bn deal to acquire RWE AG’s renewable energy business Innogy SE.
M&A volumes doubled in Europe in the first quarter, while the US was up 67% and Asia 11%.
“The better macro-economic environment in Europe has created greater confidence to get things done. Deals that have been in the works for a long time are now coming to fruition and some industries like utilities are being completely reshaped by the latest wave of consolidation,” said Borja Azpilicueta, at HSBC Holdings.
In the UK, the £8.1bn battle for control of engineering giant GKN reached its climax on Thursday, with controversial turnaround specialist Melrose clinching victory by a small margin. It is the UK’s biggest hostile takeover in almost a decade, since the Kraft bid for Cadbury.
The same day, former Tory party treasurer Michael Spencer’s Nex Group agreed a £3.9bn takeover bid from the US group CME, the world’s largest futures exchange.
In the US, the stock market rally was thwarted in the first quarter by Donald Trump’s announcements on trade tariffs on Chinese imports. Corporate valuations are still elevated, but market volatility has increased.
“Companies have become more aggressive in pursuing deals that make strong strategic sense. But valuations remain high and boards have recently become more cautious on large acquisitions, as it is more difficult to convince their investors of the potential for value creation at such price levels,” said Gilberto Pozzi, Goldman Sachs.
Regulatory risk has also increased. Trump’s dramatic intervention that blocked Singapore-based Broadcom’s $117bn hostile bid for US chip maker Qualcomm on grounds of national security earlier this month underscored heightened US concerns about losing out to China in the race for new technologies.
(REUTERS)
