Mergers and acquisitions (M&A) worldwide in the second quarter of 2015 almost matched the record set in the second quarter of 2007, according to preliminary Thomson Reuters data, as big companies turned to deals to boost their market share.
Low interest rates and stronger confidence among chief executives have led to a steady rise in M&A activity in the last two years to close to pre-2008 financial crisis levels. The second quarter of 2015, however, stands out for the number of mega deals that were clinched or attempted.
These include Royal Dutch Shell Plc’s $70 billion acquisition of British rival BG Group Plc, cable operator Charter Communications Inc.’s $78.7 billion merger with Time Warner Cable Inc., and chip maker Avago Technologies Ltd’s $37 billion acquisition of peer Broadcom Corporation.
Such large deals drove M&A volumes globally in the second quarter of 2015 up by 34.6 per cent year-on-year to $1.33 trillion as of June 26, shy of the record $1.41 trillion seen in the second quarter of 2007.
“Given the consolidation that is going on across numerous sectors, to be a bystander could mean losing ground from a competitive standpoint,” said Gary Posternack, global head of mergers and acquisitions at Barclays Plc.
“Companies are mapping out their industry landscapes, focusing on transactions that could position themselves as industry leaders, and acting aggressively to try to bring them to fruition,” Posternack added.
Low interest rates and stronger confidence among chief executives have led to a steady rise in M&A activity in the last two years
Consolidation was often sparked by one company exploring a sale and spurring its rivals into action. In the US, for example, health insurer Humana Inc.’s decision to put itself on the block prompted peers Cigna Corp., Aetna Inc., Anthem Inc. and UnitedHealth Group Inc. to also explore other deals.
To be sure, there were several takeover approaches in the quarter that were rebuffed. Cigna has so far snubbed Anthem’s $53.8 billion acquisition proposal, natural gas pipeline company Williams Companies Inc rejected a $53.1 billion offer from peer Energy Transfer Equity LP, and generic drug maker Mylan NV is resisting a roughly $50 billion bid by Teva Pharmaceutical Industries Ltd, while also seeking to acquire rival Perrigo Company Plc in a hostile $35 billion bid.
“The public markets have become more receptive to companies taking control of another company in a transformational way, even when the target may be reluctant to sell or merge,” said Robin Rankin, global M&A co-head at Credit Suisse Group AG.
A major difference between the recent M&A boom and that seen in 2007 is that the latter was to a large extent fuelled by private equity-backed leveraged buyouts, as opposed to this year’s strategic corporate deals. In fact, the first half of 2015 has seen the slowest six-month period for private equity-backed acquisitions since 2012.