Wednesday, February 10, 2016

9/2/16: We've Had a Record Year in M&As last... next, what?


Dealogic M&A Statshot for the end of December 2015 showed that global M&A volumes have increased for third year running, reaching USD5.03 trillion in 2015 through mid-December. Previous record, set in 2007, was USD4.6 trillion.

  • 2015 annual outrun was up 37% from 2014 (USD3.67 trillion) 
  • 2015 outrun was the first time in history that M&As volumes reached over USD5 trillion mark.
  • 4Q 2015 volume of deals was the highest quarterly outrun on record at USD1.61 trillion, marking acceleration in deals activity for the year
  • There is huge concentration of deals in mega-deal category of over USD10 billion, with 69 such deals in 2015, totalling USD1.9 trillion, more than double USD864 billion in such deals over 36 deals in 2014.
  • Even larger, USD50 billion and over, transactions accounted for record 16% share of the total M&As with 10 deals totalling in value at USD798.9 billion.
  • Pfizer’s USD160.0 billion merger with Allergan, officially an ‘Irish deal’, announced on November 23, is now the second largest M&A deal in history (see more on that here: http://trueeconomics.blogspot.com/2016/01/28116-irish-m-not-too-irish-mostly.html)


The hype of M&As as the form of ‘investment’ in a sales-less world (see here http://trueeconomics.blogspot.com/2016/02/9216-sales-and-capex-weaknesses-are-bad.html) is raging on and the big boys are all out with big wads of cash. Problem is:


The former, however, is trouble for investors, not management. The latter two are trouble for us, mere mortals, who want well-paying jobs. which brings us about to 'What's next?' question.

Given lack of organic revenue growth and profitability margins improvements, and given tightening of the corporate credit markets, one might assume that M&As craze will abate in 2016. Indeed, that would be rational. But I would not start banking on M&A slowdown returning companies to real capital spending. All surplus cash available for investment ex-amortisation and depreciation and ex-investment immediately anchored to demand growth (not opportunity-creating investment) will still go to M&As and share support schemes. And larger corporates, still able to tap credit markets, will continue racing to the top of the big deals. So moderation in M&As will likely be not as sharp as moderation in corporate lending, unless, of course, all the hell breaks loose in the risk markets.

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