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Financial Services
Takeover volumes hit post-crisis highs
From the Financial Times of Mon, 22 Dec 2014 18:47:56 GMT

Corporate takeover deals surged to their highest levels since the financial crisis this year, with merger and acquisition volumes rising 47 per cent to $3.34tn globally.

In the busiest period since 2007, megadeals returned with a vengeance, as historically low borrowing rates, buoyant capital markets and inflated share prices prompted big transactions with the potential to remake industries — particularly in pharmaceuticals, technology and media.

The thirst for deals is expected to pour into the new year, led by the US and UK, where growth prospects are rosier than in other developed economies.

Wilhelm Schulz, head of M&A at Citigroup for Europe, Middle East and Africa, said: “A clear theme of this year has been the need for large European companies to make acquisitions outside their main markets. That outbound M&A is likely to persist in 2015.”

But by number of deals, Thomson Reuters data show that M&A activity climbed just 5 per cent from a year ago, meaning that midsized and small companies have yet to join in.

Henrik Aslaksen, global head of M&A at Deutsche Bank, said: “The large deals are masking subdued growth in M&A activity. The rate of growth of deal activity in the US is likely to normalise next year following a very strong 2014. However, we could see Emea activity pick-up from a comparatively low base.”

Three deals this year, including Comcast’s $71bn acquisition of Time Warner Cable and AT&T’s $67.2bn takeover of DirecTV, ranked among the 10 largest of the past decade if debt on the target company’s balance sheet is added.

The moves — which are reminiscent of the earlier dotcom days when AOL offered a stunning $164bn in stock for Time Warner — give the acquiring internet and media distributors greater purchasing power and scale.

Content makers responded, punctuated by 21st Century Fox’s unsolicited and later abandoned $80bn approach for Time Warner, the parent company of HBO and Warner Brothers film studio.

“What we’ve seen this year is not just large strategic deals that changed industry structures, but the speed with which consolidation happened,” said Michael Carr, head of Americas M&A at Goldman Sachs.

That differentiates from the pre-crisis period, which was dominated by large buyouts. Advising on nearly $1tn worth of deals, Goldman Sachs ranked first among advisory banks.

Energy was the busiest sector in the year to December 17, with oil services company Halliburton pouncing on smaller rival Baker Hughes last month in a $38.5bn deal that is seen as a prelude to further consolidation given the dramatic fall in oil prices. That trend continued last week with Spain’s Repsol acquiring Canada’s Talisman for $8.3bn. On Monday, UK-listed Afren said it had received an approach from Nigerian oil group Seplat.

Dealmaking helped the pharmaceuticals industry tackle the boom in biotechnology and the rise of challengers with tax-friendly corporate domiciles — the latter pressuring the US’s Pfizer and AbbVie to unsuccessfully pursue European rivals AstraZeneca and Shire in failed efforts to lower their tax profile.

Using its tax-efficient structure, Valeant became a household name with its dogged chase of Botox-maker Allergan, but it could not best a $66bn bid by rival deal-machine Actavis.

In many instances, investors blessed these aggressive actions, sending up stocks of acquirers and emboldening boardrooms.

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