Cor­po­rate deal­mak­ing driven by fast tech­no­log­i­cal change

Jamaica Gleaner - - BUSINESS -

THE APPETITE for merg­ers and ac­qui­si­tions re­mains near a record high as firms try to adapt to fast tech­no­log­i­cal changes, and de­spite a wel­ter of geopo­lit­i­cal con­cerns, a sur­vey of ex­ec­u­tives found Mon­day.

In its half-yearly re­port of merg­ers and ac­qui­si­tions (M&A), con­sult­ing firm EY found that 56 per cent of firms are plan­ning a deal within the next 12 months. That’s un­changed from the pre­vi­ous sur­vey in April but way above the sur­vey’s long-run av­er­age.

The sur­vey shows that the high de­gree of po­ten­tial M&A ac­tiv­ity runs par­al­lel to ris­ing ex­pec­ta­tions over the state of the world econ­omy, with all ma­jor economies grow­ing in sync. A stag­ger­ing 99 per cent of global ex­ec­u­tives be­lieve the M&A mar­ket will im­prove or re­main sta­ble this year.

Since a lull fol­low­ing the global fi­nan­cial cri­sis, when firms opted for a safety-first ap­proach, M&A has be­come in­creas­ingly pop­u­lar, with many com­pa­nies opt­ing to use their cash re­serves to make deals, par­tic­u­larly in the field of fi­nan­cial tech­nol­ogy.

HIGH-PRO­FILE DEALS

Among the big deals an­nounced this year are John­son & John­son’s US$30bil­lion takeover of Swiss phar­ma­ceu­ti­cal firm Acte­lion, and United Tech­nolo­gies’ plan to buy Rock­well Collins for about US$23 bil­lion.

Other high-pro­file deals in­clude Ama­zon’s US$14-bil­lion takeover of Whole Foods and Gilead’s US$12-bil­lion ac­qui­si­tion of Kite Pharma. Mean­while, US drug­store chain CVS Health Corp is re­port­edly in talks to buy the coun­try’s third-largest health in­surer, Aetna Inc, in a deal that could be worth more than US$60 bil­lion.

One par­tic­u­larly bright spot in both the global econ­omy and in M&A is the 19-coun­try Euro­zone, where the econ­omy has gained mo­men­tum as con­cerns waned over the bloc’s fu­ture fol­low­ing years of cri­sis.

Steve Krouskos, EY’s global head of trans­ac­tions, said the main mo­ti­va­tion be­hind the high in­ter­est in deals is the need for firms to equip them­selves for the fu­ture, par­tic­u­larly in dig­i­tal tech­nolo­gies, which are forc­ing rapid change in many sec­tors. That means a large pro­por­tion of deals will be smaller scale in na­ture and not the block­buster ones.

“Deals are a nec­es­sary part of the tool­kit,” Krouskos said.

He added that the need to adapt to tech­no­log­i­cal in­no­va­tion “over­rides geopo­lit­i­cal con­cerns”, which range from wor­ries over North Korea’s nu­clear am­bi­tions to Pres­i­dent Don­ald Trump’s in­ten­tions to rene­go­ti­ate trade deals and Bri­tain’s up­com­ing exit from the Euro­pean Union.

The sur­vey, which was based on in­ter­views with nearly 3,000 ex­ec­u­tives across 43 coun­tries and across sec­tors, also found that half of com­pa­nies ex­pect pri­vate eq­uity to be­come more in­volved in M&A.

“The resur­gence of pri­vate eq­uity could be the big­gest M&A story over the next 12 months, with cor­po­rates be­ing chal­lenged for as­sets much more ag­gres­sively than dur­ing the past five years,” said Krouskos.

Pri­vate eq­uity, he added, is “set to take an even big­ger role at the deal ta­ble”.

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