Worldwide mergers and acquisitions activity has exceeded $3 trillion for the fourth consecutive year, extending an unprecedented wave of deal making that bankers say is set to accelerate in 2018.
The final month of 2017 was capped by three blockbuster transactions sparked by companies taking action against the threat of disruption from the likes of Amazon, Facebook and Netflix, which are using their size and scale to push into new sectors.
Faced with the prospect of Amazon’s entry into the pharmacy business, the US’s biggest drugstore chain CVS Health agreed to acquire healthcare insurer Aetna for about $69 billion.
Meanwhile, Amazon’s effect on retail worldwide prompted Australia’s billionaire Lowy family to sell its global shopping centre business Westfield to France’s Unibail-Rodamco for $24.7 billion.
Further encroachment by Facebook and Netflix into sports rights, media and film production led Rupert Murdoch to sell much of his 21st Century Fox empire to Disney in a $66 billion deal.
The total volume of deal making hit $3.5 trillion in 2017, a 1 per cent drop from a year ago and the lowest figure since 2014, according to data from Thomson Reuters. But it also marked the fourth straight year that deal levels surpassed $3 trillion, a record streak.
“We believe the momentum around large deal activity will continue into next year as we see a number of industries undergoing massive strategic shifts and further consolidation,” said Marc Nachmann, co-head of global investment banking at Goldman Sachs, which ranked as the top advisory firm by volume of deals this year.
The US bank advised Amazon on its $13.7 billion acquisition of upmarket grocery chain Whole Foods, in a deal that underscored the ecommerce group’s ability to rattle an entire industry with one swift move.
Eileen Nugent, an M&A partner at Skadden, said: “Every industry is being disrupted, everyone is trying to respond to technological changes, nobody wants to be left out and that’s why many companies are buying strategic assets to better position themselves to compete on a global scale.”
The US remained the most active region, with $1.4 trillion of deals, though the value of M&A there fell 16 per cent from a year ago. Still, the number of US deals struck in 2017 climbed above 12,400, a record figure that was driven by a surge of transactions with a value of less than $1 billion.
Dealmakers expect a fillip for M&A next year as companies plot how to take advantage of savings from president Donald Trump’s corporate tax reform bill.
Steve Baronoff, chairman of global M&A at Bank of America, and Ethan Klingsberg, a partner at law firm Cleary Gottlieb Steen & Hamilton, said that the improved economic outlook had led many companies to pursue unsolicited transactions.
The largest deal of 2017 has yet to be resolved, as Broadcom pursues a hostile $130 billion bid for rival chipmaker Qualcomm. Broadcom has laid out plans to oust Qualcomm’s board in March.
In contrast to the US, European deal activity climbed 16 per cent to $856.3 billion despite the largest attempt in the region - a $143 billion bid by Kraft Heinz to acquire Unilever - failing early in the year.
The approach, led by private equity’s 3G Capital and a Warren Buffett-backed group, triggered a series of moves across the European consumer sector, with Unilever rushing to snap up trendy brands and unload its spreads business to KKR for €6.8 billion in one of the year’s largest private equity deals. It also led activist investors to target other large companies, including Switzerland’s Nestlé and France’s Danone.
Elsewhere, Germany’s Hochtief and Italy’s Atlantia remain locked in a battle to purchase Spanish infrastructure and toll roads group Abertis in a deal that could exceed $38 billion, including debt. Bankers expect activity to pick up further next year, particularly among infrastructure, utility and energy companies.
Jens Welter, co-head of European investment banking at Credit Suisse, said: "The pick-up in deal activity across sectors and geographies is fuelled by a European economy that is in its fifth year of recovery and growing at the fastest pace in a decade."
Activity in the Asia-Pacific region reached $911.6 billion, up 11 per cent from a year ago, even as the volume of outbound deal making from China failed to surpass the record it hit in 2016.
A new capital-controls regime in China and increased scrutiny from the US government and European states took a toll on the ability of Chinese groups to invest in sensitive US technology or strike megadeals in 2017.
But Chinese companies still maintained an aggressive rate of overseas acquisitions, committing to $140.5 billion of cross-border deals, making it the country’s second biggest year, albeit down about 34 per cent from 2016.
“For a year that started with a pretty gloomy outlook - with Cfius in the US and domestic capital controls in China - it turned out to be incredibly busy,” said Marcia Ellis, a partner at Morrison & Foerster in Hong Kong. “[Chinese companies] shifted their focus: less on the US and less on tech.”
Many groups, predominantly state-controlled ones, turned their gaze to infrastructure, resources and energy deals overseas. In the largest acquisition of the year for China, a consortium led by sovereign wealth fund CIC agreed to buy European logistics group Logicor from Blackstone for €12.25bn. State-backed Yancoal picked up a Rio Tinto coal asset in Australia for $3.5bn in another one of 2017’s largest Chinese transactions.
Much of that activity, along with some private sector deals, is expected to continue.
"On a relative basis, sentiment definitely feels better," Colin Banfield, joint head of global cross-border M&A at Citigroup, said of the prospects for the new year.
“Based on the volume of activity and inquiries we are seeing right now, the outlook for 2018 is promising.” -Copyright The Financial Times Limited 2017
