Return of mega-deals helps European M&A double

LONDON (Reuters): 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 percent to $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 percent 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 $62 billion bid for London-listed drugmaker Shire and Comcast’s 22 billion-pound ($28.8 billion) attempt to disrupt Twenty-First Century Fox’s 11.7 billion-pound takeover of pay-television broadcaster Sky.

M&A bankers and lawyers said a stand-out was the rise in $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 $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 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 $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,” 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.”

Asia’s dealmakers bank on Japan to extend record first-half M&A spree

HONG KONG/SINGAPORE (Reuters): Asia’s dealmakers are pinning their hopes on a prolonged upsurge in Japanese mega-deals to help cushion a possible slowdown in Chinese M&A and sustain the record level of transactions in the region seen in the first half of 2018.

M&A involving Japanese firms nearly quadrupled to a record $232.4 billion in the half-year, Thomson Reuters data showed, as marquee-name targets were scooped up. British drugmaker Shire is being acquired for $62 billion in Japan’s biggest-ever overseas purchase, and a consortium led by SoftBank Group bought a stake in Uber Technologies for $7.7 billion.

The deals rush has led Western banks such as Credit Suisse and JPMorgan to bulk up in Tokyo, which has typically been dominated by local banks and a handful of entrenched foreign firms.

“We see an outbound focus where the leaders in particular industries such as financial services, food and beverage and consumer are looking to expand globally, taking their products, brand and expertise to other markets,” Joseph Gallagher, head of Asia Pacific M&A at Credit Suisse, said about Japanese firms.

“Domestically we are seeing a rationalisation on big conglomerates focusing more on shareholder value and selling (non-core assets).”

Overall, the value of deals involving Asia Pacific companies hit a record at $801.2 billion in the first six months of 2018, the data showed. Excluding Japan, value of deals rose by 20 percent to $563.3 billion in the first half of this year. Asia’s pick-up in M&A activity mirrors an upturn worldwide, with global dealmaking totalling $2.5 trillion, up 59 percent year-on-year and a record for this point in the year.

Though Japan had many of the headline-grabbing deals in the half-year, Chinese companies also saw robust M&A activity. State-owned utility firm China Three Gorges launched a $10.8 billion offer in May to take complete control of Portugal’s biggest company EDP.

The country was again the top target in Asia for both domestic and foreign acquirers and accounted for 46 percent of all deals targeting an Asian company. And deals involving a Chinese target or acquirer amounted to $330 billion, up 16 percent year-on-year.

There is concern though that rising trade tensions between the United States and China will cast a shadow over the general dealmaking environment.

John Hall, JPMorgan’s co-head of investment banking coverage for Asia Pacific, said a slowdown in China’s outbound deals was caused not just by politics in the West but also policy changes in China. But the impact of domestic policy has normalised, he said.

“Chinese companies are again buying businesses overseas where they make sense,” he said. Some bankers said the focus is shifting to other markets where political and regulatory pressures are more straightforward.

“The story this year is less about China outbound M&A, it’s about the other countries in the region which are having a very good year. This deal activity is across Southeast Asia, Korea, Australia,” said James Tam, head of M&A, Asia Pacific at Morgan Stanley.

Other large Asian deals included Walmart’s agreement to take control of Indian e-commerce firm Flipkart for $16 billion and the $9 billion stake purchase in Daimler by the founder of China’s Zhejiang Geely Holding.

This month, Jack Ma’s Ant Financial Services Group made headlines by completing a $14 billion fundraising – the largest ever single fundraising by a private company.

“Clients are still active and they increasingly want to do cross border stuff,” said Apoorva Shah, Nomura’s co-head of M&A in Asia ex-Japan, who highlighted growing cash piles at companies and buyout groups as a driver for the acquisitions.

Morgan Stanley’s Japan joint venture with Mitsubishi UFJ claimed the top spot in the country’s ranking for the first half, according to the data. The US bank also topped the Asia ex-Japan M&A league table, followed by UBS and Bank of America Merrill Lynch.