Trends in Deal Making – Webinar Recap

H1 2014 was a very exciting time for dealmaking. Here's some of the highlights from Thomson Reuter's latest Trends in Deal Making webinar.

Thomson Reuters recently hosted their Trends in Deal Making webinar for Q2. Matthew Toole, Director of Deal Intelligence for Thomson Reuters, and Chris Hughes, EMEA Editor for Reuters Breakingviews, highlighted some of the major trends of H1 2014, and made some predictions for the remainder of the year. We’ve brought together some of the highlights below:

H1 2014 was a very exciting time for dealmaking, with deal activity reaching levels we hadn’t seen in a number of years.

Investment banking fees

Investment banking fees were up 12% compared to H1 2013 – the best H1 since 2007

We saw a change in the make-up of overall fees. Equity capital markets took up the bulk of the fee pool (30% during Q2 2014). Debt capital markets took a bit of a backseat, and M&A also didn’t play a very big role (though M&A numbers are based on completed deals. A very large pipeline of fees are expected to come from M&A when these deals are complete)

Boutique M&A advisors account for 26% of global M&A fees during H1

IB fees

Worldwide M&A activity

Merger activity reached levels not seen since the financial crisis – attributed to pent up demand over the last 5 years, and thought to be just the beginning of things to come

Worldwide merger activity was up 73% compared to H1 2013

Cross-border M&A doubled

Hostile and unsolicited activity accounted for 8%

As a percentage of global GDP, worldwide M&A accounted for 2.3% in 2013. If deal activity continues at current pace, there’s expected to be a sharp uptick in 2014

wordlwide MnA
Which industries were hot?

H1 2014 saw a lot of activity in the healthcare sector, driven largely by tax inversions and the opportunity to redomicile headquarters to attractive places like the UK, Ireland, and Switzerland. Healthcare deals accounted for over $300 billion (excluding the Pfizer deal). On the surface it looked like a healthcare phenomenon, but there was (and still is) a lot of work being done in all sectors on potential tax inversion deals.

The telecommunications industry was also hot in H1. Notable deals included the colossal battle for Vivendi’s mobile telephony subsidiary SFR, which Altice group won for $23 billion, AMETEK’s acquisition of Zygo for roughly $280 million, Vodafone’s $10.1 billion acquisition of Kabel Deutschland, and of course the proposed $45 billion Time Warner/Comcast deal.

European M&A is back!

European M&A came back in a very big way, accounting for 28% of M&A. A lot of this activity was driven by cross-border inbound activity, with low sovereign yields in Europe inhibiting the capacity for organic growth. Acquirers were therefore looking at more defensive deals, rather than outbound strategic moves.

Mega deals tripled

Large cap deals were up 130%

Deals over $5 billion more than tripled from 2013 levels. Notable deals included Time Warner/Comcast ($45 billion); DirectTV/AT&T ($48.5 billion); Allergen/Valeant Pharmaceuticals ($53 billion); and Covidien/Medtronic ($42.9 billion)

For US deals over $1 billion, over 70% of acquirers’ share prices went up after the announcement; something not really seen before

The rise of gutsy, complicated deals

Ambition was all over the place when you look at some of the largest deals of H1 2014. Deals like Time Warner/Comcast and Lafarge/Holcim tested regulators, while others, like the Novartis/Glaxo deal, were forced to become quite creative.

Even deals which started out as simple, like the Alstom/GE deal, turned out to be quite complicated. What started as a pretty clean cash proposal from GE ended up as a contested deal, with GE agreeing to a series of partnerships and fuzzy alliances. In the end, they got the backing of the French state and GE board, but it’s another example of the incredible ambition and creativity we’re seeing to get deals done.

Activist investors stepped up

Activist investors were doing their part in H1 2014 to make deals happen, capitalizing on investor fatigue and a shortage of organic growth. Bill Ackman was the driving force behind the impending $53 billion Allergen/Valeant deal. It’s the biggest example we’ve got of an investor flip – of investors really egging on strategic buyers to do deals.

What’s happening in pharma and biotech?

The pharma and biotech industries continue to experience growth challenges. R&D productivity generally has been unconvincing for many investors. In addition, there is huge pressure from governments with tight budgets to pay less for healthcare, with consumer expectations increasing. This is logically driving M&A activity across the board.

Chris Hughes pointed to AstraZeneca as a natural acquisition target. With an overhaul of the board a couple of years ago, and unconvincing R&D results, the company wasn’t delivering commercial success from a vast army of scientists. It was therefore entirely natural that Pfizer made a move on it. Looking ahead, Hughes predicts that Pfizer may come back toward the end of the year with a new proposal, unless there is a change in the political environment that upturns deal inversion.

Private equity activity down

Worldwide PE-backed LBOs decreased 29% from H1 2013

Financial sponsor fees were up 45% across all products, indicating that PE exits are happening and still a huge source of fees for the investment banking community

H1 2014 indicated that the financing capacity to do big deals is there, but the value is not. Hughes suggests that we’re more likely to see PE activity at the small end of the scale ($1-$2 billion mark) for the remainder of the year. Sponsors are very conscious that they have to seize the day on exits.

Debbie Stephenson

Debbie Stephenson is a former Content Marketing Manager at Firmex.