THE first half of last year let us know what we were in for on the global mergers and acquisitions front, with the blockbuster Heinz-Kraft deal alone worth $50 billion (£33.7bn).
But as the year developed it became clear those food giants were far from alone in seeing M&A as a speedy way to growth as organic earnings generally managed sedate rather than stellar advances.
By the end of the year worldwide takeover deals hit a record $4.3 trillion (£2.9bn), beating the $4.1tn achieved in 2007 – the year before it all went pear-shaped with the financial crash. Many will be hoping that earlier debt-fuelled primrose path to bust, which was also fomented by banking irresponsibility, is not repeated this time.
Other major deals this year included AB InBev’s £71bn swoop on SABMiller, uniting the world’s biggest and second biggest brewing giants, oil giant Shell’s £43bn acquisition of BG Group, and the BT and EE tie-up in the telecoms sector.
Drugs giant Pfizer brought the year to a close with its $160bn offer for Allergan, with many investment bankers believing that other members of the Big Pharma club, such as GSK, Roche and Novartis, have itchy trigger fingers as internal drug pipelines run down.
One sector that largely passed on M&A was the mining and commodities sectors. It seemed most of the majors decided to batten down the hatches and buttress their balance sheets as commodity prices tumbled globally, rather than construct an opportunistic merger amid the strong winds. With the likes of the International Monetary Fund predicting only patchy economic growth in 2016, it will be interesting to see whether cash-rich companies decide carpe diem is the order of the day this year with more mega deals or whether the climate is one of reduced aspirations.
It is the classic conundrum. The price of target companies fall in challenging economic times, and shareholders become a little more receptive to what often prove the siren voices saying M&A is the way to go. Conversely, it has been proved that in the long run most acquisitions (Royal Bank of Scotland/ABN Amro, Lloyds/HBOS, etc) destroy value, and the integration of two businesses and cultures is more challenging if the economic backdrop is poor.
It wouldn’t surprise me if there was more M&A activity in the technology sector, particularly involving big boys such as Microsoft, Apple, Facebook, etc, as in terms of organic growth such players must be close to saturation point.
These would not necessarily have to be major strategic deals, but moves into niche technology/social media sectors to widen the offering.
In terms of individual companies in the UK, Rolls-Royce has been touted as vulnerable given its trading woes, but I feel the government’s golden share will put off all but the most determined suitors.
Overall, though, 2016 has a big previous year to live up to in terms of gung-ho deal enthusiasm. «