Megadeals Push Global Takeovers Past $1.2 Trillion

Around $50 billion worth of takeovers saw global volumes exceed $1.2 trillion. This was a record-breaking feat within the quarter, experts say.

Concho Resources agrees to buy its rival RSP Permian

Japan’s top drug manufacturer Takeda manifested the the eagerness of initiating these “megadeals”. The company revealed it’s $40 billion takeover of Shire, an Irish rival in the same industry. Concho Resources, a US oil and gas producer, has also agreed to buy its rival for $9.5 billion (RSP Permian). In the same manner, CME Group, the Chicago exchange bought Nex Group at almost £3.9 billion.

So many political events have been transpiring globally. There is a potential trade war against China led by US and repercussions of Brexit. However, companies have ventured out for unexpected big acquisitions so far in the year. This year’s deals have surged up to $1.2 trillion which is more than three times than before (according to Thomson Reuters).

Current Status

More than 50% of the $1.2 trillion worth of acquisitions for the first 3 months of the year have been worth more than $5 billion. Experts say that this is actually the fastest start to any year ever.

Possible reasons

What could have pushed these companies to make such a move? The Lawyers and Bankers who had spoken to Financial Times revealed that these big transactions may have been bolstered by initiative of board members to head off disruptive threats in the technological aspects. In addition, these board members also desire an accelerated growth of their businesses.

Global growth and enhanced business confidence may have also boosted the deals between companies. Tax cuts passed in the previous year may have also contributed to the marquee acquisitions.

The head of Mergers and Acquisitions at Skadden, Stephen Arcano, disclosed that companies have become more alert about any potential political risks. However, there is currently no evidence that the pace of deal talks are going to slow down as the year ends.

First Quarter Deal-making

To get a clearer picture of the dealmakings done in the first quarter of 2018, we look at these themes.

Morgan Stanley dethrones Goldman Sachs

Morgan Stanley overtakes Goldman Sachs’ position in M&A rankings

During the first quarter of 2018, Morgan Stanley took over rival Goldman Sachs’ position in the M&A rankings of the world. The consistent pipeline of megadeals helped in his way to the top.

Morgan Stanley advised buyers and sellers from all over the world for deals worth $385 billion in total. This is technically more than a third of Goldman Sachs’ advise of $264 billion worth of transactions. The leader of the advisory Robert Kindler and Morgan Stanley’s vice-chairman and also M&A global head, made do with fewer deals compared to Goldman Sachs in the same period yet with transactions of bigger amount.

Shaky relations with China 

Bankers and lawyers pin the reason of the 15% decline in Chinese cross-border dealmaking this year to the shaky relations between China and US.

True enough, the unstable relations between China and the US have been behind the low deal count. Chinese companies obtained overseas assets worth $25.2 billion in the first quarter while the number of deals plummeted. The only significant negotiation that has occurred in 2018 so far was the $9 billion investment in Daimler by Geely. In addition, increased resistance against acquisition of US technology by China has also added to the culprit. Miranda So, a Hong Kong-based partner at law firm Davis Polk, has given the same sentiment.

Lastly, several sensitive political meetings began in October 2017. This was also considered to have disrupted deal flows in the previous year. Companies like HNA Group has been on the wait for clarity on the types of outbound investment to be allowed.

U.S. crackdown threatens bullish mood

President Donald Trump’s use of national security concerns could scare dealmakers

In the early part of 2018, the US Government executed the blockage of prospects of the largest technology acquisition. This was the $142 billion takeover of Qualcomm by Broadcom, a company based in Singapore.

Current president Donald Trump’s use of national security concerns to block a takeover that was not yet on its finality was unexpected. This probably scared dealmakers all around the world at the time when the US government was pursuing more protectionist policies.

Such actions by the government affected a specific area in the trade: deals from China with companies only being 4% of the activity so far in 2018.

The market demands strengthening

Global private equity deals have been going strong in the last 5 years. This standing owes it to the record amounts of cash moving into the sector while investors sought for ways that increased their returns.

The US witnessed the largest increase in private equity transactions with a rise in deals at around 52% which are led by buyout funds. This accounted for a total of $45.4 billion in the current year.

Two deals have significantly made it to the two largest transactions of the first quarter. First, we have Blackstone’s $20 billion acquisition of Thomson Reuters’ financial terminals and data unit. Second, there is Carlyle’s 10.1 billion euro acquisition of the speciality chemicals unit of Akzo Nobel.