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Dealmaking shows no sign of slowing down as 2007 records loom
[NEW YORK] As Greece teeters on the edge of default and bond and stock market investors decide how to react, global dealmakers remain optimistic.
Global M&A activity this year is on track to pass US$3 trillion for the first time since 2007, according to data compiled by Bloomberg. If the dash to consolidate continues - particularly among the biggest health-care, technology and communications companies - volumes may even pass levels last seen in the years leading up to the global financial crisis. Below, investment bankers based in the US and Europe share their perspectives on dealmaking so far in 2015: why companies are doing transactions now, whether stock markets are affecting valuations, and whether it can top 2007 as the biggest year ever for M&A.
Luigi Rizzo, head of M&A for Europe, the Middle East and Africa at Bank of America, based in London: Hard data and momentum year-to-date point to 2015 possibly equaling or surpassing the biggest M&A year on record. Dealmaking is, among other things, about sound industrial logic, investors' confidence in boards and management teams' ability to successfully execute, as well as striking a balance between each party's strategic objectives and views on relative valuation.
Against that background, while current valuations are on the high side, they did not come about abruptly or with extraordinary volatility. While the rates environment is undeniably an important consideration in deciding whether to transact or not (and when), we do not see it as a main driver of M&A activity today.
Gregg Lemkau, global co-head of M&A at Goldman Sachs Group, based in New York: The M&A activity year-to-date has been robust and building momentum. We're on pace to approach 2007 levels. If the current environment persists, we have a good shot of exceeding it. While equity valuations have increased, the transactions we are seeing still make strong economic sense. Companies are taking advantage of low-cost debt, as well as using their own highly valued equity as acquisition currency to fund these transactions.
Candidly, any interest-rate hike is likely to be gradual and well telegraphed - companies aren't necessarily acting now to front-run any expected interest-rate hike. We are seeing deals now as the environment is so conducive to smart, strategic transactions.
Larry Hamdan, head of Americas M&A at Barclays Plc, based in New York: Global M&A volumes in 2015 certainly are on track to exceed 2014 and could approach 2007's all-time record. Although year- to-date volume is trailing 2007, consolidation trends remain very strong in health-care and technology, media and telecommunications, and many companies are looking to grow earnings per share in an overall low-growth environment.
Given that markets have been expecting a U.S. rate hike later this year, we don't expect Fed actions to have a material near-term impact on M&A deal volumes or the strength of the acquisition financing market.
Kasim Kutay, managing director and co-head of European investment banking at Moelis & Co., based in London: This year will likely get very close to 2007, with some chance of topping it. But there are differences. Certain sectors, such as mining, which accounted for significant M&A pre-crisis, are not seeing many deals. The slack has obviously been picked up by sectors such as healthcare and TMT.
Stock valuations won't hinder deals. The speed of the recovery in valuations took a while to adjust to but that is now largely behind us, and where equity is being used, relative valuations matter as much if not more than absolute values.
M&A is being driven by economic recovery - notably in the US - as well as a return of confidence, shareholder enthusiasm, sector specific trends and the availability of ample credit. I don't think corporates are basing their M&A decisions on speculation on interest rates.