June 27, 2018

Robust global growth, plenty of capital, stabilizing geopolitics gives buyers confidence

Colin S. Schopbach, Vice President, Sales | June 27, 2018

Dealmakers had a busy time around the world in May. Deal value sustained its upward climb compared to last year, rising an impressive 82.2% year-on-year (YoY), bringing the five-month total since January to US$1.69trn. That figure is already more than half last year’s 12-month sum of US$3.12trn. Evidently, steady global growth and record amounts of accumulated capital — combined with positive geopolitical developments, such as easing tensions on the Korean Peninsula — are giving buyers confidence.

Most of May’s largest deals represented continuations of ongoing M&A themes. The month’s top transaction by value saw Japanese pharma powerhouse Takeda acquire Irish drugmaker Shire in a deal valued at US$79.7bn — the latest foray abroad by a Japanese corporation seeking diversification from its home market. The purchase follows Takeda’s US$4.8bn deal for US-based biotech firm Ariad Pharmaceuticals in 2017 and comes as it seeks to boost sales in the more profitable markets of the West.

In the US, industrial giant General Electric moved forward with its plan to divest billions in assets with the sale of its GE Transportation unit. Rail equipment manufacturer Wabtec Corporation agreed to pay US$11.1bn for the business, creating a combined company with revenues of around US$8bn.

As GE extended its retreat, consumer behemoth Wal-Mart went in the opposite direction — expanding by spending US$16bn for a 77% stake in India-based online retailer Flipkart. The deal allows Wal-Mart to further grow its international footprint and, crucially, remain competitive with rival Amazon, which was also bidding for the target. India’s 1.3 billion people make it an important growth market for the firms, with the country estimated to become the third-largest consumer market in the world by 2025.

In a few cases, major deals last month broke new ground as well. Activity in the US Financial Services sector has been relatively quiet since the upheaval of the financial crisis, excluding consolidation among community and regional banks. But in May, Fifth Third Bancorp announced it would pay US$4.6bn for MB Financial to create an institution with the second-most retail deposits in the Chicago area. More deals could follow after Congress passed a measure last month rolling back some compliance requirements for banks.

One curious result for the month was a slowdown in private equity transactions after a very fast start to the year. Total buyout value is now slightly behind last year’s pace at US$216.4bn through the first five months of 2018. It remains to be seen whether the slump signals newfound difficulty on the part of buyers to find worthy targets for their dry powder, or if May was a temporary blip.

Overall, a cautious optimism reigns in the M&A world as we head into summer. As sports fans from different countries come together to enjoy the World Cup, we can expect an equally collegial atmosphere around dealmaking tables worldwide.

For greater insight into these trends and more, download The Monthly M&A Insider, presented by Merrill Corporation and Mergermarket. The report explores the global M&A market with respect to the numbers, movements and trends, as well as revealing the top financial and legal advisors – globally and across six regions (North America, Central and South America, Europe, Middle East and Africa, Asia-Pacific and Japan).

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