More than $2.5 trillion in mergers announced in early 2018
Four of the 10 biggest deals were struck in part to fend off tech company competition
More than $2.5 trillion (U.S.) in mergers were announced during the first half of the year, as fears of Silicon Valley’s growing ambitions helped drive a record run of deal-making.
Four of the 10 biggest deals were struck in part to fend off competition from the largest technology companies as the value of acquisitions announced during the first six months of the year increased 61 per cent from the same period in 2017, according to data compiled by Thomson Reuters. That has put mergers in 2018 on pace to surpass $5 trillion, which would top 2015 as the largest yearly total on record.
Even rising global trade tensions did not manage to stifle acquisitions: Deals involving companies based in different countries nearly doubled compared with the first half of last year, and accounted for more than 40 per cent of all announced transactions.
The increase in dealmaking has played out against the backdrop of a healthier economic outlook in many parts of the world nearly a decade after the recession. In the United States, interest rates remain low, corporate earnings are ballooning thanks in part to tax cuts, and stock prices remain near historic highs. In this environment, companies have turned to mergers and acquisitions for growth, trying to grab market share and reinvent their business models, especially as Amazon, Netflix and other tech companies increasingly push into new industries.
Big deals, a number of them in media and health care, have driven much of the activity. So far this year, companies have announced 36 transactions valued at $10 billion or more, according to Thomson Reuters. They combined for $950 billion in deals, or nearly 38 per cent of all activity.
Competition from the tech sector has pushed the largest media firms to own both the content and the platforms on which it appears.
So far this year, the value of the announced media deals has jumped to $323 billion, up nearly 440 per cent from a year ago. Comcast and Disney have waged a takeover battle for much of 21st Century Fox as their deep-pocketed Silicon Valley rivals steal viewers, ad dollars and big-name creative talents. (Apple alone has more than a dozen original series in development.)
Last month, Comcast offered $65 billion for much of Fox’s entertainment assets after earlier bidding $30.7 billion for the British broadcaster Sky, of which Fox owns a significant portion. Disney responded by increasing its offer for the Fox assets to $71.3 billion.
A federal judge’s recent approval of AT&T’s $85.4-billion acquisition of Time Warner removed some of the regulatory uncertainty around blockbuster mergers, and could touch off more deals. Comcast waited just a day after the judge’s ruling before challenging Disney’s existing bid with its own offer.
Other industries have not been immune to tech’s encroachment. Amazon’s muchdiscussed entrance into health care has helped push heavyweights in traditionally separate spheres to combine. The pharmacy chain CVS Health announced a $69-billion merger with the health insurer Aetna late last year, and in March another health insurer, Cigna, announced a $52-billion deal for Express Scripts.
Competition with Amazon also drove one of the biggest over- seas acquisitions by a U.S. company so far this year: Walmart’s $16-billion deal for a majority stake in Flipkart, India’s leading e-commerce platform.
The White House has tried to redefine the global trade balance, imposing billions of dollars in tariffs in hopes of bolstering domestic manufacturers. The levies have sparked retaliatory tariffs from trading partners, raising the spectre of a trade war.
The Trump administration has also rejected a number of acquisitions by Chinese companies on national security grounds, and even blocked then-Singapore-based Broadcom’s $117-billion bid for Qualcomm out of fear that it would put the United States behind China in developing next-generation mobile technology. The decision underscored how far the administration will go to shelter U.S. companies from foreign competition.
Even so, the value of crossborder deals jumped to more than $1trillion in the first half of the year, its second-highest level on record. Acquisitions of U.S. companies by foreign buyers jumped 48 per cent to $206 billion.
But it may simply be too early for the rancour over trade to stymie deal-making. Negotiations can take months, and the tariffs have only just begun to take effect. While confidence among business leaders has remained high, some companies have now begun to project job cuts and other losses as the trade conflict continues.