Investor support for large acquisitions and a desire to trump rivals in consolidating markets have led chief executives to strike big transactions so far in 2014, raising year-to-date global deal volumes to their highest level in seven years.
Corporate buyers did not shy away from going hostile if their targets proved unwilling to sell, while more US companies rushed to buy overseas peers to lower tax rates and access cash held offshore in a practice known as inversion.
The dealmaking frenzy could last for several months absent geopolitical or economic shocks, with buyers keen to take advantage of their strong stock prices, ample cash reserves and cheap available financing.
“Companies have strategic imperatives to do deals, they have the cash to do deals, and they can borrow additional cash at record-low rates,” said Frank Aquila, a mergers and acquisitions lawyer at Sullivan & Cromwell LLP. “It really is a bit of a perfect storm when it comes to dealmaking.”
Unlike the most recent heyday of dealmaking, which was back in 2007 when private equity used cheap money to load up companies with debt, this year’s merger boom is being led by cash-rich corporations with strong balance sheets, such as Pfizer Inc, Comcast Corp and General Electric Co.
“What is notable about the deal activity we have seen in the first half of the year is the blue-chip nature of the companies who are doing the acquiring. We have finally seen the return of the strategic acquirer,” said Gregg Lemkau, co-head of global mergers and acquisitions at Goldman Sachs Group.
Year-to-date global deal volume as of June 26 surged to $1.75tn, up 75% from the year-ago period, according to Thomson Reuters data. That was the highest level since 2007, when deal volume reached $2.2tn.
This year’s increase came despite the number of global deals dropping slightly to 17,698 from 17,820 the year before.
At over $1tn, the second quarter of 2014 was the highest in deal volume since the second quarter of 2007 and was up significantly from the $680m in the first quarter of 2014.
Thirty-eight unsolicited or hostile bids, worth more than $150bn, were launched in the first six months of the year, compared with 19 such deals worth $8bn in the same period last year.
Pfizer made an abortive $118bn bid for AstraZeneca Plc, Valeant Pharmaceuticals International Inc is trying to buy Botox maker Allergan Inc for more than $5bn, and AbbVie Inc plans to appeal to Shire Plc’s shareholders after an unsolicited $46bn bid was rebuffed.
“With both the target and acquirer’s stock generally up after deals are announced, buyers see value creation and tend to be more aggressive even if targets are not willing to sell,” said Ravi Sinha, executive vice chairman of global corporate and investment banking at Bank of America Merrill Lynch.
More CEOs and boards are willing to pull the trigger on transactions that have been contemplated for a while, with a view that financing conditions are at their peak and unlikely to improve, said Marc-Anthony Hourihan, co-head of Americas M&A at UBS AG.
