Corporate makeovers drive takeovers in 2016 M&A bonanza
NEW YORK/LONDON (Reuters) – A telecommunications carrier seeks to become a TV network and movie-studio owner. A major software company acquires one of the world’s largest social networks. A smartphone maker snaps up a manufacturer of Internet-connected audio speakers for cars. In 2016, mega deals became evermore transformative.
A drive by some of the world’s largest corporations to find new avenues to expand in the face of anemic economic growth led to major acquisitions in areas adjacent to their core business. This helped make 2016 the third-biggest year on record for mergers and acquisitions, trailing only 2015 and 2007.
“Companies are reinventing themselves, looking at their business in a new way with regards to how can they be a disrupter and how they can prevent being disrupted, and this opens up deal flow,” said Chris Ventresca, global cohead of M&A at J.P. Morgan Chase & Co.
Among these transformative deals was this year’s biggest: US telecommunications company AT&T Inc.’s $85.4 billion agreement to acquire media company Time Warner Inc., the parent of CNN, TNT, HBO and the Warner Bros. movie studio.
Other such deals included software behemoth Microsoft Corp.’s $26.2b. acquisition of professional social-media network LinkedIn Corp. and Samsung Electronics Co. Ltd.’s $8b. deal to buy car-electronics maker Harman International Industries.
“The pace at which technology is impacting industries and the convergence between more traditional industry sectors have never been more on the forefront of people’s minds,” said Cary Kochman, head of North American M&A at Citigroup Inc.
SURPRISE EVENTS
Global M&A volume in 2016 fell 17% from last year’s record to $3.6 trillion, while the number of deals remained almost flat at 44,688, according to preliminary Thomson Reuters data.
Despite heightened geopolitical uncertainty around the world, which was exacerbated by surprise events, including Britain’s vote to leave the European Union and the election of brash political outsider Donald Trump as US president, cross-border M&A accounted for nearly 40% of total M&A activity, as companies continued to push for growth beyond their core markets.
“It’s been impossible to look at a deal without considering political instability as a result of yet another referendum or election,” said Luca Ferrari, head of M&A in Europe, the Middle East and Africa at Bank of America Corp.
German drug and crop-chemical maker Bayer AG announced its $66b. takeover of US agrochemicals company Monsanto Co., while ChemChina signed a $43b. acquisition of Swiss seeds group Syngenta AG, as consolidation in the sector intensified.
China outbound cross-border M&A, nearly a third of which was in the United States, totaled $221b., more than double the record of $109b. set last year, as the Asian powerhouse pressed on with its grab for resources. Deal value of Chinese acquisitions in the US jumped 841% in 2016 compared with 2015.
“Asian companies have shown more determination in pursuing deals, and this is mainly driven by their need for global scale and acquiring expertise they don’t have,” said Gilberto Pozzi, cohead of global M&A at Goldman Sachs.
As always, several transactions were driven by a push to add scale or find cost synergies. These deals included Canadian gas-pipeline operator Enbridge Inc.’s $28b. purchase of Spectra Energy Corp. and the $65b.-plus merger between industrial-gases groups Linde AG and Praxair Inc.
“Many of these deals were straight-out consolidation, a quest to get out there and solidify positioning,” said Robin Rankin, cohead of global M&A at Credit Suisse Group AG.
REGULATORY RISK
To be sure, not all announced deals are guaranteed to close, as regulators and politicians have increased scrutiny following the latest wave of consolidation.
Pfizer Inc. abandoned its $160b. acquisition of Ireland-domiciled pharmaceutical peer Allergan plc, the biggest tax inversion ever attempted, after the US Treasury unveiled new rules to curb inversions.
In another example, office-supply chain Staples Inc. and smaller rival Office Depot Inc. called off their planned $6.3b. merger after a US federal judge blocked it on antitrust concerns. Both deals had been announced last year. “In 2015, companies became very aggressive in pursuing strategic consolidation where they felt an imperative to do so and in that context were willing to stretch the envelope from a transaction-risk perspective,” said Gary Posternack, global head of mergers & acquisitions at Barclays Plc.
The value of withdrawn M&A deals worldwide in 2016 was $804b., as more companies came up against such obstacles.
“You can’t place all your bets on the largest deals. You are going to be wrong more often than not,” said Marc-Anthony Hourihan, cohead of Americas M&A for UBS Group AG.
Not all attempted deals made it to the board room either, as the stock-market rally raised valuation expectations and made it more difficult for buyers and sellers to agree on a price.
An attempt by US social-media company Twitter Inc. to explore a sale ended unsuccessfully, while US industrial conglomerate United Technologies Corp. rejected a $90.7b. offer by rival aerospace supplier Honeywell International Inc.