Daily Management Review

Cheap loans and economic growth triggered growth of the M&A market


03/30/2018


Since the beginning of the year, the amount of mergers and acquisitions (M&A) has reached a record $ 1.2 trillion, and about half of this amount is accounted for mega deals (worth more than $ 5 billion). Among the reasons for record activity are economic growth, cheap credit and tax reform in the US. Even political instability has not yet been able to have a negative impact on the M&A market.



edar via flickr
edar via flickr
The British newspaper Financial Times writes that the number of mega-deals (deals worth more than $ 5 billion), made since the beginning of 2018, was a record. The last deal was concluded yesterday, when US energy company Concho Resources bought its competitor RSP Permian, the deal was worth $ 9.5 billion. Besides, it became known yesterday that the Japanese pharmaceutical company Takeda wants to buy its Irish competitor Shire, which costs $ 40 billion. According to Thomson Reuters, this year the total amount of mega deals was three times higher than in the same period last year. In addition, more than 20 deals worth more than $ 10 billion have been concluded since the beginning of the year.

In general, the amount of mergers and acquisitions (M&A), committed since the beginning of the year, has already exceeded $ 1.2 trillion, and about half of this amount accounted for mega deals. Earlier it was reported that in the current year the amount of M&A reached a record high of $ 1 trillion. Thus, activity in the M&A market this year is 67% higher than in 2017, and one third higher than in 2007, which is still a record.

Among the reasons for the sharp increase in M&A are the acceleration of economic growth, cheap credit, the growth of business confidence, as well as tax reform in the US. The sharp increase in transactions is not hampered even by the atmosphere of political instability, including the threat of a trade war between the US and China and the continuing uncertainty surrounding the Brexit. Steven Arkano, the head of the M&A division of the American law firm Skadden noted that companies are closely monitoring potential political risks, but so far there are no signs that the pace of negotiations on deals will slow down later this year.

The amount of transactions made in Europe has doubled compared to last year, especially in Great Britain, Germany, the Netherlands and Spain. Among the largest deals in this region is the exchange of assets of German energy companies E.ON and RWE for $ 55 billion and Carlyle's investment fund purchasing the chemical business of Dutch company Akzo Nobel for € 10.1 billion. Meanwhile, number of foreign deals of Chinese companies since the beginning of the year has fallen, which is attributed to the deterioration of China's relations with the United States, as well as to the tightening of the policy of Chinese regulators in relation to such transactions and the difficulties with US regulators. The amount of foreign transactions of Chinese companies decreased by 15%, to $ 25.2 billion, and the number of transactions fell to the lowest since 2005.

The only major deal involving Chinese companies is the Chinese holding Geely purchasing a stake in the German automaker Daimler at $ 9 billion. "In my opinion, the main problems are regulatory uncertainty in the US and the future of US-Chinese relations. This is a risk that has reduced the appetite for foreign transactions," said Miranda So, a partner of the law firm Davis Polk. In general, cross-border transactions involving US companies since the beginning of the year increased by 76%, to $ 511.7 billion, despite some regulatory risks. So, in early March, US President Donald Trump banned the merger of the manufacturer of Qualcomm microprocessors with its Singapore rival Broadcom.

source: bloomberg.com






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