Mergers & Acquisitions

Megadeals drive torrid pace for M&A activity

April 29, 2014

The value of corporate takeovers announced in 2014 hit the $1 trillion mark Monday, reaching that level at the fastest pace in seven years.

That threshold was crossed 54 days earlier than in 2013, after more than $300 billion in purchases were announced by companies from Eli Lilly and Co. to Valeant Pharmaceuticals International Inc. to Alibaba Group Holding Ltd. in April, data compiled by Bloomberg show. The total excludes another $175 billion in proposals by Pfizer Inc., Mylan Inc. and others that have been rebuffed or are still awaiting final agreements.

CEOs, with more than $4 trillion in cash on company balance sheets globally, have gone from being wary of making big deals to facing pressure to strike deals or be beat to opportunities by their major rivals, said Michael Shaoul at Marketfield Asset Management LLC.

“Literally this past week we maybe just entered an M&A boom,” said Shaoul, who oversees more than $20 billion as CEO of Marketfield in New York. “Management teams are starting to build this mentality that they’re going to be a buyer or be bought. It puts pressure on everybody to think about who they could be buying.”

If dealmaking continued at April’s rate for the rest of the year, 2014 would see almost $4 trillion of deals announced, making it the second most active year for M&A ever, behind 2007, data compiled by Bloomberg show.

Deals continue

There are more to come this month. Merck & Co. is close to picking the winner of an auction of its consumer-products business, while Alstom SA—the French maker of power plants and trains that has received offers for its energy business from both General Electric Co. and Siemens AG—says it will make an announcement this week.

That the $1 trillion figure was hit in April this year, compared with June last year, is owed largely to the drug industry, which has accounted for nearly one-third of April’s deal announcements. Those companies could pressure rivals to strike their own takeovers or risk missing out as the industry recalibrates, said Mark Lubkeman, a senior partner at the Boston Consulting Group.

A three-way deal that will have Novartis AG, GlaxoSmithKline Plc and Indianapolis-based Lilly swapping assets, for example, will give other drugmakers the courage to think about creative ways to do M&A, he said.

‘Get busy’

“There’s a real imperative for management teams to think expansively about value-creation and to get busy.”

Even the deals that aren’t getting off the starting block highlight a change in thinking by chief executives whose confidence in economic growth has turned a corner. Pfizer’s proposal to acquire AstraZeneca for about $98.7 billion, which was rejected Monday by the British drugmaker, would rank as the industry’s biggest-ever takeover.

Barrick Gold Corp. and Newmont Mining Corp. called off merger talks that might’ve led to the largest mining-industry transaction since Glencore and Xstrata Ltd. merged in 2012, data compiled by Bloomberg show.

“Mega deals are opportunistic. Opportunistic deals are born out of confidence,” said Richard Jeanneret, Americas vice chair of transaction advisory services at Ernst & Young LLP. “CEOs are starting to pull the trigger on bigger bets now that they are feeling more confident about the stability in Washington and the stronger U.S. economy.”

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