M&A | Deals Surpass $1 Trillion As Companies Spend Cash

M&A activity is heating up as companies take advantage of low-cost debt and large cash reserves.

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The value of announced mergers and acquisitions reached more than $1 trillion globally for the year to date on March 20, the fastest start to a year on record for M&A transactions, according to Dealogic. All-cash offers so far this year are leading all-share deals by a large margin, reflecting the availability of low-cost debt and the fact that some companies are putting their cash to work in a revived economy.

“Many companies are in good health, with expectations of steadily rising revenues, capital expenditures and employment,” says Matthew Toole, director of deals intelligence at Thomson Reuters. “Rather than sit on cash, the widely shared expectation is for companies to deploy capital on strategic acquisitions, a trend we’ve seen so far in 2018, with double-digit percentage gains for dealmaking across all regions.”

Some 60% of corporations put “funding acquisitions” within their top three priorities for use of cash reserves in 2018, finds the Thomson Reuters Deal Makers Sentiment Survey. The firm polled 275 M&A and capital markets professionals and business executives in 48 countries between November 2017 and January 2018.

“In such a fiercely competitive market, companies are also looking for sector expertise in their advisors, which coincides with a long-running increase in the share of M&A fees taken by boutique advisory firms,” Toole says.

Nearly half of corporate respondents said acquiring “undervalued assets” was a top M&A objective, followed by acquiring “high-growth businesses” and “achieving economies of scale.”

Regulatory compliance was cited as an additional motivation for M&A activity, particularly in Europe, where more than half of respondents cited this as a driver of industry consolidation. European M&A is running at a 12-year high.

In the US market, companies expecting an income boost from tax cuts passed last year are deploying more capital in acquisitions. The repatriation of capital from overseas is also driving some deals.

There have been a record 33 mega-deals—those valued at more than $5 billion—so far this year, according to Thomson Reuters. Cigna’s $69 billion takeover of pharmacy benefits manager Express Scripts is the largest acquisition announced so far this year. If the deal goes through, all major US pharmacy benefit managers will have links to big insurers.

Despite the global merger boom, foreign bids for US companies have fallen in the year to date, according to Mergermarket data. The 154 such deals, valued at $79.8 billion through March 13, 2018, were down from 231 deals totaling $132.5 billion in the same period last year, a drop of about 40% in value. The largest transaction involving a US target and a foreign bidder so far this year is France-based Sanofi’s $11.6 billion bid for US-based biotech Bioverativ.

Dealmakers are broadly bullish about the prospects for M&A during 2018 across most metrics, regions and industries, Toole says. Europe’s dealmakers expect the continent’s corporates to play catch-up with their US peers, while taking advantage of relatively lower valuations, he says. Meanwhile, Asian corporations are expected to receive significantly more attention from private-equity buyers, he adds.