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Return of mega-deals helps European M&A double

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These include Japanese firm Takeda Pharmaceutical's US$62 billion bid for London-listed drugmaker Shire.

[LONDON] A resurgence in mega-deals has led to a doubling of mergers and acquisitions activity in Europe so far this year, raising questions among bankers and lawyers about when the pace of blockbuster transactions will start to fade.

The value of M&A activity in the region leapt by 96 per cent to US$767 billion year-on-year during the first six months of 2018, taking it to the highest level since the last deal-making boom in 2007, according to the latest Thomson Reuters Deals Intelligence data.

The total deal value rose even as the number of transactions in Europe slid by 18 per cent to 6,201, the fewest since 2005, the data showed, indicating that companies have embarked on fewer but bigger takeover attempts.

These include Japanese firm Takeda Pharmaceutical's US$62 billion bid for London-listed drugmaker Shire and Comcast's £22 billion (S$39.55 billion) attempt to disrupt Twenty-First Century Fox's £11.7 billion takeover of pay-television broadcaster Sky.

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M&A bankers and lawyers said a stand-out was the rise in US$10 billion-plus takeovers during the first-half.

"One of the features of the last few months has been the return of the mega-deal," said Andy Ryde, the head of Slaughter & May's corporate practice.

Moves by two FTSE 100 companies, consumer goods giant Unilever and analytics and data business Relx, to simplify their corporate structures also swelled the value of deal activity during the first half. The transactions to unify their dual listing structures are classed as acquisitions by Thomson Reuters Deals Intelligence.

Listing unifications aside, the continuing availability of cheap debt has spurred companies into embarking on M&A before borrowing costs rise, according to Harry Hampson, chairman of the EMEA Industries Coverage group at JPMorgan.

"While there is a sense that rates will go up over time, they are still at very low levels so transactions can be financed attractively. There's also a sense that it's better to do deals sooner rather than later, because rates will go higher," he said.

Britain remained the second most popular target nation for M&A, behind the United States, with British firms attracting about US$269 billion worth of deals, the data showed.

Two years on from Britain's vote to leave the European Union, company bosses have decided they cannot put expansion plans on hold while they wait for Britain to agree the terms of its exit from the EU, bankers said.

"Smart investors are thinking hang on a second, UK Inc isn't just going to dissolve and shut up shop," said Guy Hayward-Cole, the co-head of M&A for EMEA at Nomura.

In the same way the Brexit vote has not dented the M&A market, international tensions around Russia, political turmoil in Italy, and the protectionist trade policy pursued by US President Donald Trump have also so far failed to stifle deal activity in Europe.

"While there's plenty of confidence, it's slightly fragile because there are lots of reasons why you might think that the climate wasn't perfect," said Mr Ryde.

"There are lots of wider geopolitical factors that could easily start to cause deals to pause, not least the fact that we're potentially looking at an international trade war."

Despite those geopolitical concerns, global M&A hit an unprecedented US$2.5 trillion during the first half, a record level of deal-making that has prompted many bankers to ask whether the market is reaching a peak.

JPMorgan's Hampson said companies were pressing on with deals now as they eye the end of the ultra-loose monetary policies that were brought in by central banks around the world in the wake of the financial crisis.

Earlier this month, the European Central Bank signalled it planned to finish its quantitative easing (QE) programme this year, although interest rates will remain unchanged until late in 2019.

"We're in an extraordinary period of ultra-low rates and massive liquidity," Mr Hampson said.

"The big question is when will it all end? When will we see QE end and the normalisation of rates? Corporates want to get ahead of that by moving now with M&A or plans to go public."

REUTERS