COULD 2013 see a return of the mega-deal? After all, interest rates are rock bottom, companies have more cash than they know what to do with, and everyone is talking up economic growth. What better time to take a punt?
This month has seen the first clear signs that mergers and acquisitions (M&A) activity is stirring again.
Warren Buffett (always a good bellwether) teamed up with 3G and his Brazilian counterpart, Jorge Lemann, to launch a surprise £18 billion cash bid for Heinz – the global food industry’s largest ever deal. Heinz shares immediately jumped an impressive 20 per cent. Buffet, Lemann and 3G (which owns Burger King) are betting Heinz will mean more beans in China as Asian tastes become Westernised.
The Heinz move comes on top of John Malone’s acquisition of Virgin Media for £10bn. Meanwhile, Michael Dell (with help from Microsoft) raised £16bn to take private the world’s No. 3 PC maker. The Dell leveraged buyout is the largest since 2007.
Throw in Thursday’s merger of American Airlines and US Airways (to form the world’s biggest airline) and we’ve had £50bn of M&A deals in two weeks.
True, these deals are all in the US, where the market has been buoyed by signs of a resolution to the budget crisis. In a Europe where the euro debacle still weighs heavily, M&A activity last year was only £450bn – 14 per cent down on 2011 and the lowest recorded since 2003.
However, the point about this month’s mega deals is not that they represent a return to the dizzy heights of 2007. We are a long way from that. Leveraged buyouts in the US in 2012 reached £60bn – less than a quarter of the 2007 total.
But the latest M&A activity does suggest a definate increase in tempo.
Yes, these deals are being put together by the usual bucaneers. But you’d expect Warren Buffet to lead the charge.
US private equity funds have an acquisitions war chest estimated at £130bn. They won’t sit on that cash forever.
Note: the M&A habit could also spread to Britain. Last year UK M&A activity was up 6 per cent by value, bucking the European tend.
World sliding towards currency devaluations
It’s official: there is no currency war. According to Russia’s deputy finance minister, Sergei Storchak, hosting yesterday’s G20 pow-wow in Moscow: “There are no currency wars”.
Mario Draghi of the European Central Bank agreed, saying talk of such was “inappropriate, fruitless and self-defeating”.
All of which means exactly the opposite. The world is sliding towards competitive exchange rate devaluations, just as it did during the 1930s. The chosen mechanism: loose monetary policy.
The Swiss led the charge last year in a bid to stop the flow of hot money into the safe haven of Swiss francs ruining the country’s exports.
Japan followed suit: the yen is down 20 per cent since November. Of course, the Bank of England wouldn’t countenance such a begger-thy-neighbour approach. It is totally accidental that sterling hit a six-month low this week. The Bank is not engaging in obvious currency manipulation any more than is the Bank of Japan.
Instead, the markets correctly read Wednesday’s announcement by Sir Mervyn King that the Bank had yet again (yawn, yawn) missed its inflation target as proof he wants a cheaper pound - but daren’t say so publicly.