Global M&A 1Q19 Roundup: JPM Beats Out GoldmanGuest Post
Mergermarket, an Acuris company, has released its Global M&A roundup for the first quarter (Q1) of 2019, including its financial advisors league tables. Take a look at the report HERE and don’t forget to review the charts breaking down the activity by sector, value, year-to-year analysis, etc.
A couple key findings include:
- After a peak in the M&A cycle during the first half of 2018, greater market volatility, geopolitical tensions between the US and China, Brexit anxiety in Europe, and strengthening economic headwinds continued to weigh down deal activity in the beginning of the year. Only 3,558 transactions worth a total USD 801.5bn were registered in 1Q19, a 15% decrease in value compared to 1Q18 (5,085 deals worth USD 943.5bn). But pockets of consolidation in some particularly hot sectors, vigorous private equity activity and a healthy domestic deal flow in the US should give hope to dealmakers for the rest of 2019
- Large cross-border deals, which propelled M&A activity in the past five years, have almost disappeared. Only nine mega deals (above USD 10bn) have been struck so far this year, down from 14 in 1Q18. All but two, Newmont’s acquisition of Canada-based Goldcorp for USD 12.8bn and Saudi Aramco’s acquisition of Saudi Basic Industries Corporation (Sabic) for USD 70.4bn were the result of US-based corporates taking out competitors in their home market
- In the US, despite the hefty sums paid for US firms, deal count saw a decrease in 1Q19, posting 1,081 transactions – the fewest for a first quarter in half a decade. Meanwhile, overall US deal value reached USD 414.2bn in 1Q19 – just shy of 1Q18’s first quarter record high of USD 415.6bn. Further, this year has also seen the largest biopharmaceutical transaction recorded in the US, and one of the largest transactions ever across all sectors: Bristol-Myers Squibb’s USD 89.5bn bid for Celgene
Regional M&A Comparison
After a peak in the M&A cycle during the first half of 2018, greater market volatility, geopolitical tensions between the US and China, Brexit anxiety in Europe, as well as strengthening economic headwinds continued to weigh down deal activity in the beginning of the year. Only 3,558 transactions worth a total USD 801.5bn were registered in 1Q19, a 15% decrease in value compared to 1Q18 (5,085 deals worth USD 943.5bn). But pockets of consolidation in some particularly hot sectors, vigorous private equity activity and a healthy domestic deal flow in the US should give hope to dealmakers for the rest of 2019.
Large cross-border deals, which propelled M&A activity in the past five years, have almost disappeared. Only nine mega deals (above USD 10bn) have been struck so far this year, down from 14 in 1Q18. All but two, Newmont’s acquisition of Canada-based Goldcorp for USD 12.8bn and Saudi Aramco’s acquisition of Saudi Basic Industries Corporation (Sabic) for USD 70.4bn were the result of US-based corporates taking out competitors in their home market.
The largest deal of the year so far – Bristol-Myers Squibb’s USD 89.5bn bid for Celgene – illustrates the continued appetite for transformative deals in the Pharma, Medical & Biotech (PMB) sector. Large pharma companies’ interest in clearly-defined niches and specialty areas is expected to further fuel healthcare dealmaking this year.
The ongoing convergence between payment processors and financial software firms led Fiserv to buy First Data in an allstock combination valued at USD 38.4bn and Fidelity National Information Services (FIS) to acquire Worldpay for USD 42.6bn in March. The rapid growth of the global online and card payment industry combined with the growing threat from start-ups could put other players such as US-based TSYS and Jack Henry, or Hellman & Friedman-backed, Denmark-based Nets into play.
Winston-Salem, North Carolina-based BB&T’s USD 28.1bn bid for Atlanta, Georgia-based SunTrust in February will create the 6th largest bank in the US and should trigger further M&A moves in the banking sector in the US. The same could be said about Europe after Deutsche Bank and Commerzbank confirmed they were in merger talks. UBS, BNP Paribas and Credit Suisse had earlier been named as alternative merger partners for Deutsche Bank. Perhaps benefitting from a ripple effect of the corporate tax cut, the US showed strong resistance, accounting for 51.7% of total global M&A value in 1Q19, only the third time since 2007 that more than half of global M&A has occurred in the US.
Cross border M&A accounted for only 30.8% global M&A in 1Q19 (USD 246.9bn) compared to 38-40% on average between 2015 and 2018. Outbound M&A from China and Hong Kong was particularly subdued, reaching its lowest level since 3Q14, at USD 12.1bn over 56 deals in 1Q19. In Europe, only 17 deals were struck by acquirers from China and Hong Kong for a total value of USD 2.3bn, the lowest quarterly value recorded since 4Q13. The deal flow from China into Europe could be further hit in the coming months by the recent announcement that the EU will set up a new foreign direct investment screening framework to protect strategic sectors.
Private equity firms continue to look for ways to deploy record amounts of dry powder. But after four years of consecutive increases in both the volume and value of buyouts globally, good assets are fewer and far between. Buyout activity therefore saw a marginal decrease in value – from USD 107bn in 4Q18 to USD 103bn in 1Q19 – but a significant drop in volume – from 920 to 629 deals. The scarcity of quality mid-market targets also led to an increase in take-private deals globally. With 22 deals and a total value of USD 40.4bn, take-private transactions conducted by private equity firms reached their highest Q1 value and volume since 2013, driven by the by the USD 11.8bn acquisition of US-based Ultimate Software Group by a Hellman & Friedman – Blackstone consortium and the USD 6.5bn (EUR 5.7bn) public takeover offer for Germany-based Scout24 by the same two lead investors.
High-profile trade sales such as KKR’s partial exit of First Data to Fiserv in the US or the acquisition of Singapore-based property developer Ascendas-Singbridge by CapitaLand from Temasek for USD 8.1bn has helped global exit activity reach USD 125.6bn in 1Q19, its highest Q1 value on record.
“Vigorous private equity activity and a healthy domestic deal flow in the US should give hope for the rest of 2019” Beranger Guille, Global Editorial Analytics Director
Global League tables
Amid rising levels of political and economic uncertainty, coupled with growing protectionism, many European firms slowed their investment decision making during the first quarter. This, however, has paved the way for private equity firms to take centre stage in a bid to deploy their record amount of dry powder. As a consequence, European M&A plummeted to its lowest quarterly value since 3Q12. A total USD 122.9bn changed hands across 1,387 deals, falling even further from an already subdued 2H18. So far this year, none of the ten largest deals globally have targeted Europe, with no takeovers above USD 10bn announced in the continent. The largest deal in the first quarter saw ZF Friedrichshafen acquire Swiss brake technology manufacturer WABCO for USD 7.2bn.
As a consequence, German M&A has been resilient in the opening months of 2019, despite economic difficulties, reaching USD 23.4bn – on par with 3Q18 and 4Q18 combined – following a number of high-profile buyouts. Meanwhile, the relentless uncertainty surrounding how Brexit will unfold has left UK M&A activity remaining at an historical low during the first quarter. A total of USD 35.2bn was spent on UK-based assets in the first three months of the year, rendering it the lowest quarterly value since the EU referendum in June 2016.
Boardroom confidence in pursuing blockbuster deals appears to have taken a further hit following the proposed merger between Siemens and Alstom being blocked due to competition concerns. Following calls by leading politicians across Europe, including French President Emmanuel Macron, to create ‘European champions’ capable of competing against giants outside the continent, the move brings into question the viability of such mergers going forward.
The uncertainty has hit domestic European M&A. In total, intra-European dealmaking amounted to USD 64.2bn (1,169 deals), signifying that domestic activity has failed to reach the USD 100bn mark for three successive quarters. Consequently, M&A between European companies accounts for just 52.2% of the continent’s total value, around 25 percentage points lower than at this stage in 2018 (77.5%). However, in recent weeks rumours of banking consolidation have re-emerged with Deutsche Bank and Commerzbank in talks. Both banks have long been linked as potential merger partners given their relative financial shortcomings. Combining the Germany’s two largest lenders would go some way to creating an entity of scale to more closely challenger rivals; and has been encouraged as such by the country’s Finance Minister.
Foreign investment has also been comparatively quiet this year. Inbound M&A dropped to USD 58.7bn, the lowest quarterly value since 4Q17. Foreign investment may drop further in the coming months following the announcement that the EU had approved a new foreign direct investment screening framework, aimed at “safeguarding Europe’s security, public order and strategic interests”. The move will likely result in continued subdued activity by Chinese investors into Europe. A total of 16 deals by Chinese firms into the continent were announced in the first three months of the year, marking the joint-lowest quarterly figure since 3Q13 (15 deals).
Private equity is one area to have remained robust in 2019, with several high-profile buyouts already announced. Buyouts, which have reached USD 35.9bn (259 buyouts), account for 29.2% of total European M&A – the highest figure at this stage of the year on Mergermarket record. With fundraising reaching unprecedented levels in recent years and private equity firms sitting on extortionate amounts of dry-powder, many have looked towards higher-valued assets, including listed companies, as the mid-market becomes increasingly saturated. There have been 11 take-private buyouts worth a combined USD 19.9bn announced so far this year including the USD 5.5bn takeover of UK satellite firm Inmarsat by a consortium formed of Apax Partners, Warburg Pincus and CPPIB. This represents the highest quarterly volume since 4Q14 and the highest quarterly value since the crisis and follows a buoyant period of public-to-private buyouts with a total of 78 such deals in Europe took place between 2016 and 2018. And more appear to be in the works.
Politics is likely to be at the forefront of dealmakers’ minds in the coming months with Brexit, European parliamentary elections, and potential changes to merger rules on the horizon. Despite the subdued start to the year, dealmakers will be hoping the rumoured big-ticket mergers such as Commerzbank/Deutsche Bank come to fruition and set the tone for the rest of 2019.
“Politics is likely to be at the forefront of dealmakers’ minds in the coming months” – Jonathan Klonowski, Research Editor (EMEA)
Europe League tables
The first quarter of 2019 illustrated a growing ambivalence in the world of dealmaking. While pervasive political and economic tensions – including heightened scrutiny on investments from outside of the US – led some dealmakers to be cautious, others pushed to consolidate amidst enduring technological and structural changes across industries. This was particularly apparent in the domestic sphere as US corporates engaged in a number of strategic megacombinations, as well as in the private equity space.
In fact, as geopolitical uncertainties persisted in Europe and economic slowdowns emerged in Asia, the US was the most valuable place to do business globally with 51.7% of market share as measured by total deal values around the world.
Nevertheless, despite the hefty sums paid for US firms, deal count saw a decrease in 1Q19, posting 1,081 transactions – the fewest for a first quarter in half a decade. Meanwhile, overall US deal value reached USD 414.2bn in 1Q19 – just shy of 1Q18’s first quarter record high of USD 415.6bn. Further, this year has also seen the largest biopharmaceutical transaction recorded in the US, and one of the largest transactions ever across all sectors: Bristol-Myers Squibb’s USD 89.5bn bid for Celgene.
BMS’s bid for Celgene was not only the largest deal seen globally since AT&T’s blockbuster USD 105.2bn acquisition of Time Warner in 2016, but it also solidified the return of the biopharmaceutical mega-deal (>USD 10bn) following last year’s USD 78.2bn bid for Shire made by Takeda, itself 2018’s top transaction.
Additionally, as a domestic transaction, BMS/Celgene was proof of a new era in US M&A in a sector that has left behind so-called “tax inversions”, in a win for those who had been pushing for US corporate tax reform prior to the passage of the Tax Cuts and Jobs Act of 2017.
Pharma, Medical & Biotech (PMB) was not the only sector to experience a reawakening in 1Q19. Fidelity National Information Services’ USD 42.6bn bid for Worldpay and Fiserv’s USD 38.4bn bid for First Data fueled expectations that such moves could kick off more consolidation in Business Services. The sector saw its second-highest total deal value of any quarter in 1Q19 at USD 91.6bn. Other sizable US payments companies that could join the merger wave include Total Systems Services (TSYS) and Global Payments, according to Mergermarket intelligence.
The first quarter was also notable for a third transformative mega-deal: BB&T’s USD 28.1bn bid for SunTrust marked the return of the big bank merger, coming just on the heels of Chemical Financial’s USD 3.5bn bid for TCF Financial. As the largest banking deal since the financial crisis, the former is expected to spur more such consolidation. Financial Services ended 1Q19 as the third-most valuable sector behind PMB and Business Services, with a new record for a first quarter at USD 66.9bn. The sector also benefitted from asset management activity, including Canada’s Brookfield purchasing a 61.2% stake in Oaktree for USD 4.7bn.
Though the top three deals so far were between US strategics, the rise of financial sponsors has become evident over the last several quarters. The US share of global buyouts reached 45.8%, the highest for a first quarter since 1Q15’s 47.7%. Meanwhile, a new record for global share by deal count was set with 41.1%, surpassing 1Q03’s previous peak of 40.9%.
The USD 11.8bn buyout of cloud computing and services firm Ultimate Software Group by a private equity consortium led by Hellman & Friedman and Blackstone was the seventh-largest deal of the quarter. That deal helped to boost US private equity activity to a total deal value USD 47.2bn across 257 transactions in 1Q19. While this represented a 22.5% drop in value compared to USD 60.9bn recorded in 1Q18 and a fall in deal count by 121 transactions, total buyout value was the second-highest figure for a first quarter in a half decade.
Exits were the stars of 1Q19, setting a first quarter record with USD 81.9b, also the second-highest such total registered for any quarter. The high total was helped by Fiserv/First Data, in a profitable exit for KKR. Another noteworthy deal was the take private of medical robotics firm Auris Health by Ethicon Inc., in a USD 3.4bn exit for US-based Highland Capital Partners, Lux Capital, and NaviMed Capital Advisors.
Thus, dealmakers in 2019 seem ready to continue buying up valuable targets in the US, including financial sponsors. However, with the Fed’s decision to halt interest rate hikes this year due to concerns stemming from the government shutdown, trade tensions, and slowdowns abroad, what this means for the price tags seen so far this year and how much higher they could go is anyone’s guess.
“BMS/Celgene was proof of a new era in US M&A in a sector that has left behind so-called ‘tax inversions’ ” – Elizabeth Lim, Research Editor (Americas)
US League tables
See the full report below.