The recovery in global M&A markets is developing a broader base according to Allen & Overy’s latest M&A Index. Led by the TMT and Life Sciences sectors, confidence has filtered through to not only increasing volumes and valuations but the strategic drivers behind them as well.
Corporates are looking to use the cash piles they have been building up, and largely sitting on, for the past five years or more, but they are also taking a more strategic and global view of their tax exposures, through tax inversions, and the purchase of intellectual property that will drive business growth in future. Subjects which the M&A Index looks at in more detail.
Commenting, Andrew Ballheimer, co-head of Allen & Overy’s corporate practice said: “M&A activity continues to recover albeit at a different pace and for different reasons in various markets and sectors. What is pleasing is that the recovery is beginning to show greater breadth across the economy as are the reasons that executives are willing to entertain the prospect of M&A. This underlines the level of thought and analysis that companies are putting into deals before they commit.”
TMT transactions continued to power ahead in the first half of this year, with deal values up over 100% to USD342 billion across 251 deals. In telecoms the big deals are led by two distinct trends: in-market consolidation, particularly in Europe, and a continuing tie-up between mobile operators and pay TV companies. Activity in the tech and media sector is driven by companies looking to bolster their existing business and look for new avenues of growth, such as Apple’s USD3bn acquisition of Beats Electronic.
The other dominant force in the market, Life Sciences, has seen deal values climb to USD198bn – USD130.9bn of which came in the second quarter alone – levels not seen since Q1 2009. Tax inversions have been a significant driver behind this renewed activity, but not the only one. Big pharma companies also continue to sell off non-core businesses to bring sharper strategic focus to their businesses.
Nowhere is the point on improving valuations more starkly demonstrated than in the Private Equity space, driven by a return of trade buyers who are now willing to spend to secure the assets they desire. In the U.S. alone the number of deals has nearly doubled but the average deal value has climbed by 40% from USD678m to USD954m. Meanwhile in Europe the number of deals has remained flat at 42 in the first half of this year as last, but the average deal value has climbed from USD309m to USD1.07bn. While exits remain the primary driver of activity in the Private Equity space, the returns being generated from those exits is improving markedly.
Megadeals have also been a notable feature of the first half of the year with 42 deals worth more than USD5bn compared to just 27 deals for the same period last year.
One sector that remains subdued, however, is financial services where continuing regulatory concerns and efforts to restructure are dampening deal activity with USD97bn from 164 deals, compared to USD106bn from 140 deals for the same period last year.