The Strategist

Global M&A volume reaches record high in January 2018

01/29/2018 - 13:38

Such a January has not been observed for nearly two decades, since the dotcom boom. The total volume of mergers and acquisitions in the first month of the year has almost reached 300 billion dollars.

Dwonderwall via flickr
Dwonderwall via flickr
According to financial analyst company Dealogic, the total amount of mergers and acquisitions of companies (M&A) on the planet reached $ 273 billion in January 2018, and this is the record for the 21st century. The last time a comparable result was recorded in 2000, at the height of the dotcom bubble. Recall that the bubble burst with bankruptcies of hundreds of high-tech companies.

Specialists explain such a quick start by the business confidence in the tax reform in the US, in strengthening the global economy and the sharp growth of stock markets. Among the largest deals were the US energy company Dominion Energy’s takeover of the utility group Scana, worth $ 14.6 billion. French pharmaceutical giant Sanofi bought biotechnology company Bioverativ for $ 11.4 billion. Specialists also highlight the largest producer of spirits Bacardi’s deal to acquire manufacturer of tequila Patrón for $ 5.1 billion.

The tax reform in America played a significant role in the January surge in the M&A activities. The reform reduced the corporate tax to 21% and allowed US companies to return money from the US abroad at low rates.

"Of course, many mergers and acquisitions, drawn up in January, began to be prepared long before this month," Chris Ventresca, head of the M & A department at JPMorgan Chase, told British Financial Times. "Nevertheless, the tax reform has given buyers additional confidence to pay the price necessary to conclude a deal. The presence of offshore money due to their return to America also helped reduce financial costs and risks. "

"All the necessary ingredients are ready and are in place," says head of the mergers and acquisitions department at Credit Suisse. - Now, moreover, the situation with the tax reform in the US has cleared up. Companies are striving to expand, so that such a strong start to the year should not be surprising. "

Specialists also pay attention to the sharp increase in mergers and acquisitions in the UK. The investment company Melrose Industries has launched a hostile takeover of the GKN aerospace group, which is estimated at 7.4 billion pounds (about $ 10.5 billion), and the Informa publishing and information group agreed to acquire a competing firm, UBM, for £ 4.3 billion.

At that, skeptics warn that the trend will clear up in the coming months. They see two alarming moments: the high prices of M&A and the absence of full clarity about the consequences of the tax reform in America at this stage. Curiously, with the prevailing euphoria about the tax reform, a number of transactions in the M&A market have stopped, because the participants are now trying to understand how changes in tax legislation will affect the financial performance of operations.

Still, the voices of skeptics are drown in the loud chorus of optimists. Specialists emphasize that there has never been a more successful time for a sharp increase in mergers and acquisitions in the last couple of decades. At least, financial indicators point to this. For example, the conditions for financing are now the most profitable at least since 1998, Goldman Sachs and ICE BofAML Indices believe.

According to Dealogic, the volume of sales of corporate bonds in January fell by 12% compared to the first month of 2017 to $ 270 billion. However, the bankers explain that they are simply waiting for huge amounts of uncompleted deals to enter the markets.