Deal Makers Notched Nearly $3.5 Trillion Worth in ’14, Best in 7 Years
By almost every measure, 2014 was a time for deal makers to pop the corks of their Champagne bottles.
The year was one of the best for mergers and acquisitions since the passing of the financial crisis. Some 40,298 transactions — worth nearly $3.5 trillion — were announced worldwide in 2014, according to Thomson Reuters, fulfilling the hopes of an industry that has bet on such a resurgence for some time. It was the biggest year in deals since 2007.
Many of the factors responsible for the rebound in mergers activity since the tumult of 2008 have existed for years. Debt financing is cheap and plentiful, and stock prices have climbed steadily, giving corporate buyers a more valuable currency to offer potential targets.
Perhaps the biggest change, deal makers say, is that corporate boards and management teams have come to realize that their ability to expand their companies on their own has become more difficult. A substantial move, like acquiring a major competitor or complementary business, is now seen as necessary to move the needle.
And with some semblance of predictability having descended upon the markets — the Standard & Poor’s 500-stock index rose 11.4 percent last year, with only a few bouts of heart-stopping volatility — boards feel more comfortable taking the plunge.
Investors have also supported more aggressive growth measures. The stock prices of acquirers continued on average to rise, indicating that shareholders backed those transactions.
“The large equity institutions are giving companies the benefit of the doubt in this market,” said Peter A. Weinberg, a co-founder of the boutique investment bank Perella Weinberg Partners. “This opens up a range of possibilities beyond the default use of capital, which is repurchasing stock. If shareholders say ‘stay still,’ it’s very difficult to do anything bold.”
The busiest sectors for the year have been the oil and gas industry, with 11.7 percent of the merger market and $409 billion worth of transactions, and the pharmaceuticals industry, with 6 percent market share and $210 billion worth of deals.
Yet the biggest deals of the year, including the assumption of debt, have been game-changing takeovers in the telecommunications industry. Comcast has bid for a nationwide footprint with its $45 billion proposal to buy Time Warner Cable, while AT&T hopes to gain greater scale by buying DirecTV in a deal valued at $49 billion.
The question now is whether the confluence of factors that enabled the merger revival will carry over into 2015 . Corporate advisers contend that investors have shown a remarkable ability to cope with a surge of headline-grabbing news, like the flare-ups in Ukraine and the Middle East and the Ebola outbreak.
And the possibility of the Federal Reserve’s raising interest rates has been well telegraphed and factored into companies’ decision-making.
Not even the plummeting of oil prices has dented the enthusiasm of would-be buyers. Indeed, leveraged buyout executives — who have been left out of the deal feeding frenzy, outbid by strategic buyers — have been salivating at the prospect of new acquisition targets.
“There’s comfort with the new normal, postcrisis,” Mr. Weinberg said. “C.E.O.s and boards know there’s always going to be uncertainty.”
dealbook.nytimes.com |
