Duncan Lawrie Online ▼

Posted on: 13 November 2015 by Dean Cook

2015 is likely to mark the year when global mergers and acquisitions (M&A) values exceed their previous peak in 2007, with deals of more than $4.5tr announced across 32,749 deals, and two months of the year remaining. Of this, mega deals have been a big part of the total value, with 45 $10bn+ M&A deals announced in the first nine months of 2015, with a combined total of $1.15tr, up 89% from the same period last year ($610.5bn through 27 deals)[1]. These dizzying figures have caused many commentators to question what is driving such large numbers of transactions between companies, as well as what might bring the frenzy to a close.

M&A Graph

For the developed world, economic growth since the global financial crisis of 2008 has been slower than any post-crisis recovery[2]. As a result, companies are looking at their revenue prospects and trying to work out what they can do to deliver higher sales for shareholders.

During the previous decade, businesses in developed markets were able to harvest above-average demand growth in the emerging markets, which offset pedestrian demand in domestic markets. Now, as many emerging markets mature and growth drops to more sustainable levels, there are fewer levers for growth. It is no surprise, then, that the majority of M&A activity has occurred in mature industries such as pharmaceuticals, food and beverages, and pockets of the technology sector like personal computers. For some sectors, such as oil and gas, consolidation can be necessary to survive periods of low or volatile prices. Royal Dutch Shell's proposed £45bn acquisition of BG Group shows the need to build scale in subsectors of the oil and gas market in order to compete on the global stage.

It is fairly common to see all-cash deals in the early stages of an economic recovery, as companies with strong balance sheets pounce on competitors who have not weathered the downturn quite as well. As the cycle matures and confidence builds, companies begin to bid for each other with a combination of cash and new shares. Finally, shares-only deals tend to be (though not exclusively) synonymous with the top of the M&A market, and occur when confidence is at its peak. Around this time the number of cancelled or withdrawn deals tends to rise, and since we have seen more of this in recent times (such as Pfizer's abandoned bid for AstraZeneca or Monsanto's April 2015 failed attempt to buy Swiss-listed Syngenta) it is not unreasonable to suggest that we are nearing the later stages of the M&A cycle.

[1] http://www.dealogic.com/media/market-insights/ma-statshot/

[2] "The UK Recession in Context", Bank of England Quarterly Bulletin 2010.


All data has been compiled by Duncan Lawrie from sources believed to be reliable. Full details of sources are available on request.

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