Who said M&A activity was “resting” – if not dead (for now)? Indeed, even a month ago, deal-making worldwide was looking rather like Monty Python’s proverbial dead parrot.
In fact, as FT Alphaville recently noted, August before its final week was shaping up to be the worst for deal making since 1995, according to Dealogic.
But what a different a week can (sometimes) make. On September 2 came a flurry of US deal-making, including news of Walt Disney’s $4bn purchase of Marvel Entertainment, and a deal by Baker Hughes to acquire oil-field services company BJ Services for $5.5bn.
Now – in what seems to be a steadily spreading wave of deal frenzy, it’s Europe and Asia’s turn.
As the FT’s Lina Saigol notes on Tuesday, it’s time for the world’s dealmakers to take heart.
News this week of Kraft’s approach for Cadbury and a potential deal involving France Telecom’s Orange UK and Deutsche Telekom’s T-Mobile UK have further raised hopes of a rebound in global dealmaking.
The sustained rally in global stock markets, which have surged 40-50 per cent from their March lows, has boosted the confidence of chief executives, notes Saigol. And their optimism about a hastening global economic recovery could lead to more takeover bids as companies exploit depressed valuations in hard-hit sectors to grow by acquisition.
Saigol quotes Carlo Calabria, head of international M&A at Bank of America Merrill Lynch, saying there’s a general feeling among clients that the worst was over. She adds:
Companies have spent the past two years using the downturn as an opportunity to cut costs and reduce debt. Now, with the credit markets stabilising and valuations still low compared to historical levels, those which have emerged with strong balance sheets are seeking growth, and the quickest way of adding scale is to merge or acquire.
But numbers suggest a recovery in global M&A may still be a long way off, she warns:
So far in the third quarter, there have been only $307bn (£188bn) of deals. Unless $270bn of deals are announced in September, this will be the lowest quarter since the third quarter of 2004. The volume and value of deals in sectors that usually dominate M&A activity are well below last year. Telecoms is down 54 per cent and deals in the consumer industries have fallen 93 per cent.
However, the deal activity of the past two weeks alone – particularly in telecoms and consumer industries – should, if successful, give these figures a huge boost.
And let’s not forget the “green shoots” of deal-making that now appear to be sprouting all over Asia, with news on Monday alone of nearly $5bn worth of deals struck or in the pipeline over the weekend.
First came confirmation of Hong Kong tycoon Richard Li’s $500m swoop on AIG Investments, alongside reports that Chinatrust Financial, Taiwan’s biggest credit card issuer, was bidding for AIG’s Nan Shan Life insurance operation. And on Tuesday, Reuters reported that Chinatrust was moving to raise more cash on top of a $1.34bn private placement announced on Friday – funds that Reuters suggested could see Chinatrust raise its $2.4bn bid for AIG’s Taiwan unit.
Also on Monday came news that Abu Dhabi’s ATIC had agreed to buy Singapore’s Chartered Semiconductor Manufacturing for $1.8bn, heralding what some analysts predicted would be a wave of consolidation in the chip industry.
Related link:
Three deals doth a revival make? - FT Alphaville