The Strategist

WSJ: Tech companies will cheer up the M&A market

11/23/2017 - 04:20

Several major mergers and acquisitions in the field of high technology were announced in November in the United States. Some experts hope that a surge in activity in the technology market can stimulate the rather weak dynamics of the M&A market in 2017. However, other observers note that the uncertainty of the prospects for Donald Trump’s tax reform still prevents many companies from announcing far-reaching plans to consolidate the business.

November was a fairly busy period in the US mergers and acquisitions market. The month didn’t even end, but total amount of announced or committed deals has already numbered $ 200 billion. According to Dealogic, this could be a record volume for this period since 1995. Technology companies were the most active – for example, Broadcom manufacturer of microprocessors offered for its competitor Qualcomm $ 103 billion (at $ 70 per share) on November 6. The management of the latter refused the offer on the proposed terms. Later, however, sources said that Qualcomm’s investors could eventually agree if the buyer raises the price to $ 80 per share. November 20, the US manufacturer of controllers for HDD and SSD memory, Marvell Technology, agreed to buy its competitor Cavium for $ 6 billion.

American high-tech companies stepped up their M&A activity, and so experts interviewed by The Wall Street Journal believe that this can stimulate activity in other sectors. In particular, it is reported that rumors about Amazon's interest in entering the retail drug market led to negotiations between the supplier of prescription drugs CVS Health and insurance company Aetna on the consolidation of its operations. According to some sources, this could lead to their merger worth $ 66 billion. "According to observers, AT & T's recent intention to buy Time Warner for $ 85 billion was dictated not only by the desire to resist competition from technology companies in the field of media content distribution - such as Google, Facebook and Netflix –but also to buy Time Warner before companies such as Apple or Comcast become interested in it. "I see such activity in almost all sectors," said BofA Merrill Lynch’s Director of global M&A Steven Baronoff, quoted by WSJ. "All these companies make directors and other companies think that their current single position may not be appropriate."

However, other experts doubt that the November surge in activity in the American M&A market can seriously affect results of the whole year. Since the beginning of the year, the total volume of declared and committed M&A in the US, according to Dealogic, amounted to $ 1.22 trillion, which is 18% less than in the same period last year. Investment bankers interviewed by WSJ explain this decline by uncertainty, which still accompanies the tax reform of Donald Trump. According to the chief analyst of S&P Global Market Intelligence, this year the number of M&A transactions in the US may be about 16 thousand, which will be the minimum since 2010. "Large deals began to slow down, in part because of the continuing uncertainty surrounding tax policy and policy easing regulatory regulations. All this leads to the fact that factors, which could become a catalyst for M&A activity, are disappearing, - Goldman Sachs director of mergers and acquisitions in the American region Matt McClure said. - Even if the situation clears up, the current situation may change soon, and we can see more and more companies that will reconsider major deals which are paused for now."


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