M&A Boom: $100 billion-plus weekend sets up New Record
(Bloomberg) -- Merger Monday? This time, it was more of a long weekend.
Companies announced more than $100 billion of transactions since the close of trading last week, led by T-Mobile US Inc., which finally clinched a deal for Sprint Corp. valued at about $58 billion including debt. Meanwhile, Marathon Petroleum Corp. unveiled a $30 billion-plus takeover of rival oil refiner Andeavor, and J Sainsbury Plc said it will purchase Walmart Inc.'s Asda U.K. grocery chain for about $10 billion. The flurry of late-April activity helped push global M&A volume ahead of the pace seen in 2015, the high-water mark for the past decade. In the U.S., deal volume is set to reach a new record if this momentum holds.
Helping to buoy the numbers is a resurgence of megadeals, or transactions valued at more than $10 billion. There have been 17 of them so far in 2018, more than we saw at this point in the calendar in any of the past 20 years.
What's interesting is when you look at previous high points, clear trends across industries emerge. In 2007, there was a boom in private equity buyouts. The year 2015 brought a preponderance of health-care takeovers as companies hungered after new growth opportunities, as well as a spate of consolidation in the telecommunications industry. The activity in 2018 has been much more widespread.
We've got major deals in health care, satellite-TV, insurance, energy, real estate and soft-drinks, to name a few. That's likely a reflection of broad-based confidence at the CEO level, with sentiment indicators trending in historically high ranges and (for now at least) withstanding the threat of rising trade tensions. In the U.S., the tax overhaul passed late last year is opening up access to overseas cash bounties and making it more economical to sell certain assets by lowering the associated tax bill. Borrowing costs remain relatively low, but yields are creeping up and that could be inspiring some companies to act sooner rather than later.
About 55 percent of acquirers that announced deals of size this year paid shareholders in cash, while another 7 percent or so gave investors the option between cash or stock. The percentage of all-cash deals is down compared to the previous three years, and may reflect the reality of rising financing costs or perhaps a realization that it’s wise to take advantage of richly valued shares while you can, particularly in light of heady multiples. Globally, deals valued at more than $100 million have been based on a median trailing 12-month Ebitda multiple of about 13.3, slightly above the whole of last year and a five-year high.
Barring any further escalations of a trade war with China or some unforeseen complications in talks with North Korea over a possible curtailment of its nuclear ambitions, M&A activity should stay healthy throughout the rest of the year. Whether these deals actually get across the finish line is a different question. Indicators of CEO confidence seem to suggest that business leaders have gotten more comfortable with President Donald Trump's erratic management style and are banking on a pro-business attitude prevailing despite the heated rhetoric. And yet, his administration intervened to block AT&T Inc.'s purchase of Time Warner Inc. (the antitrust case is still pending) and successfully thwarted Broadcom Inc.'s $100 billion-plus bid for Qualcomm Inc.
The biggest deals of 2018, Cigna Corp.'s nearly $70 billion takeover of Express Scripts Holding Co. and T-Mobile's Sprint takeover, are among the biggest regulatory risks. We've seen past M&A records undercut by regulators. Don't put this one in the books yet.
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