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Muted Year in M&A Ends With a Flurry of Deals, Uncertain 2020

Investors got another early holiday present last week when Roche Holdings AG’s purchase of Spark Therapeutics Inc.

Muted Year in M&A Ends With a Flurry of Deals, Uncertain 2020
A tightrope walker balances on a line at Malvarrosa beach in Valencia, Spain. (Photographer: Angel Navarrete/Bloomberg)  

(Bloomberg) -- A slow year for risk-arbitrage investors picked up in late November with several large deal announcements including Charles Schwab Corp.’s purchase of TD Ameritrade Holding Corp., LVMH’s purchase of Tiffany & Co. and Novartis AG’s acquisition of Medicines Co.

Investors got another early holiday present last week when Roche Holdings AG’s purchase of Spark Therapeutics Inc. was finally approved by the U.S. Federal Trade Commission after an unexpectedly long review. Decisions still looming in 2020 include the FTC verdict on Abbvie Inc.’s purchase of Allergan Plc and a judge’s decision whether to let some states block T-Mobile US Inc.‘s purchase of Sprint Corp.

“2019 can be summed up just as much for the deals that didn’t happen as for the deals that did,” Mike Samuels, an event-driven portfolio manager at Broome Street Capital, said in an interview. “If you speculated much this year, you got burned as illustrated by a graveyard of failed situations.”

Speculated transactions that never came to fruition included Cars.com Inc., Magellan Health Inc., Arconic Inc., Axalta Coating Systems Ltd., Hilton Grand Vacations Inc. and Qiagen NV.

“The seemingly never happening China trade deal we all got yanked around by since February 2018 certainly chilled corporate suites from making large capital commitments, like M&A, notably through much of the back end of 2019,” said WallachBeth Capital analyst Brett Buckley.

Looking ahead, it remains to be seen whether a potential Phase 1 trade agreement with China will mean anything for deals that still need Chinese approval. Those include Nvidia Corp.’s planned purchase of Mellanox Technologies Ltd. and Infineon Technologies AG’s purchase of Cypress Semiconductor Corp.

“I don’t think Phase 1 dramatically changes this,” said Harris Arch, co-portfolio manager of DuPont Capital’s merger arbitrage strategy, which managed $175 million. “I wouldn’t read into that it will open the floodgates that China approval is going to be extremely easy. Some of the major issues between the two nations are still unresolved. I think we are still in unknown territory.”

The outlook for deals in 2020 may also be affected by the presidential election as companies try to figure out what the regulatory environment will look like depending on which party wins.

“Deals that get done more quickly are more likely to be struck,” Arch said. “Uncertainty is an impediment to M&A. A deal that takes 12 months to 13 months to close, I think management will be a little hesitant. Certainly as we get into the spring, maybe you see a bit of pause on huge deals.”

WallachBeth’s Buckley said it might come down to who the Democratic candidate is.

“If it’s Biden, we’re fine,” Buckley said, “If it’s Elizabeth Warren or Bernie Sanders you better believe you get something done before they get in. So going into the election year now, M&A might be on hold a bit until they know the Democrat candidate.”

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To contact the reporter on this story: Joshua Fineman in New York at jfineman@bloomberg.net

To contact the editors responsible for this story: Catherine Larkin at clarkin4@bloomberg.net, Richard Richtmyer

©2019 Bloomberg L.P.

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