A job seeker shakes hands with an employer at a job fair. (Photographer: Scott Eells/Bloomberg)

There’s No Easy Deal in 2019, But That’s Not Stopping Big M&A

(Bloomberg) -- The first quarter of 2019 saw no shortage of companies announcing big deals, with nine topping $10 billion. Dealmakers say that closing those transactions, though, is proving tougher than any time in the past decade.

Regulatory delays -- the perennial bugbear of M&A -- aren’t the only reason for once. Deals are also being threatened by activist investors and hostile interlopers. Newmont Mining Corp. had to promise its largest dividend in 32 years to win over detractors of a $10 billion merger with Goldcorp Inc., while Merck KGaA is tussling with Entegris Inc. to try and one-up that company’s $3.8 billion offer for Versum Materials Inc.

Even traditional institutional investors are going on the offensive to seek higher returns as money flows into passive funds.

Wellington Management Co.’s decision to publicly oppose Bristol-Myers Squibb Co.’s $74 billion takeover of Celgene Corp. was “a wake-up call to the market that we might be heading into an era where long-only institutions are going to be more vocal about M&A transactions,” said Dusty Philip, co-head of global M&A at Goldman Sachs Group Inc.

“Getting announced deals to closing this year is more difficult than it’s been at any time since the financial crisis,” Philip said.

Bristol-Myers won a partial reprieve from at least one of its agitators Friday. After two prominent shareholder advisory firms urged investors to support its takeover of Celgene, activist firm Starboard Value said it would call of its proxy fight to block the deal. It still plans to vote against the transaction.

More Planning

The increased threat of disruption has meant more work and planning for acquirers and their advisers before a deal is announced. At Goldman Sachs, activist advisers and capital markets executives are becoming involved much earlier in the process, so they can analyze the risks and better anticipate how the market might react, Philip said.

Philip doesn’t see the complications affecting deal volumes -- or at least not yet -- as companies forge ahead with transactions driven mostly by the technological disruption that’s sweeping through industries. He’s expecting more action in technology and financial technology for that reason. “A land grab in bio pharma” will help fuel M&A in health care, he added.

About $728 billion of deals were announced globally in the first quarter, up just 1 percent compared to the same period in 2018, according to data compiled by Bloomberg. North American dealmaking propped up the total, rising 8.6 percent while activity in Europe slumped by almost half.

One of the interesting characteristics of the market this year has been the willingness of chief executive officers to go after an asset that’s already up for sale if they think it’s a good opportunity to boost growth, said Christina Mohr, vice-chairman of mergers and acquisitions at Citigroup Inc.

“While there’s not a lot of robust confidence, CEOs are jumping in when they think ‘I’ll lose that company if I don’t act’,” she said.

Still, dealmakers say deal volumes this year are unlikely to surpass last year’s global total of $4 trillion. A major factor behind that is the decline in midsize deals, Mohr said, fueled in part by concerns over trade tensions between U.S. and China, political instability in the U.S. and Brexit.

“What the market is missing right now is the underpinning of $1 billion to $10 billion deals that tend to be the bulk of the M&A market -- those deals are down more than 30 percent year to date,” she said.

©2019 Bloomberg L.P.