31,500 M&A deals expected in 2014; highest level since 2011
Deloitte M&A Index Q4 2014
Global mega-deals push M&A values to $2.5 trillion by mid-November*, the highest since 2007
Global M&A deal volumes are set to end the year with a 3% increase over last year and reach their highest level since 2011, according to the M&A Index from Deloitte. The Index forecasts c.8,500 deals in the fourth quarter, making it 31,500 for the year.
More than $2.5 trillion worth of M&A deals globally have been announced so far in 2014, a 30% increase on $1.9 trillion for the whole of 2013. This is set to make 2014 the best year for M&A deals by value since 2007, largely boosted by 26 ‘mega-deals’ of above $10 billion, primarily in the Life Sciences and Technology, Media and Telecom sectors. In the Irish market, this included the acquisition of Covidien Plc by Medtronic in the life sciences sector. Other significant transactions in the Irish market included the acquisition of Bord Gais Energy Trading Limited by Brookfield Renewable Energy Partners, Centrica Plc and iCON Infrastructure, and GE Capital Aviation Services’ agreement to acquire Milestone Aviation Group Limited. The acquisition of Milestone Aviation is subject to regulatory approvals, and is expected to close in 2015.
Life science and healthcare transactions by mid-November accounted for 95% of disclosed deal values and 21% of deal volumes in Ireland. The largest number of transactions has occurred in Ireland’s consumer business sector, at 34%.**
David O’Flanagan, Head of M&A in Deloitte Ireland, commented: “Globally corporates are in a position of strength, they have record levels of cash reserves, have rebuilt balance sheets and stock market rallies have lifted their share prices. All these factors coupled with positive market sentiment in the first half of the year, led to a strong 2014. Globally, this year will go down as a year when mega-deals made a comeback. Meanwhile, the Irish market continues to be characterised by a large number of property and loan portfolio sales, albeit we are beginning to see an increase in more traditional M&A activity.”
O’Flanagan cautioned: “Looking ahead, global M&A deal volumes will have a slow, but steady recovery. In recent months there has been heightened geo-political risk and increased investor scrutiny following a number of high-profile deal withdrawals. Therefore we expect companies to display patience and consideration while pursuing M&A activities in 2015.”
This year saw a sharp increase in European deal-making, which doubled from around $300 billion for the first nine months of 2013 to more than $600 billion in the same period of 2014. This year also saw the return of Chinese deal making into the West. Chinese M&A activity into Europe more than tripled by the start of November to $7.9 billion.
Although the US quantitative easing programme has ended, the pace of US economic recovery is expected to continue. At the same time, other major economies, including Eurozone, are facing challenges. These diverging economic trajectories mean that the US companies could take advantage of an appreciating US dollar to pursue more cross-border deals.
O’Flanagan added: “The Europe-North America corridor will continue to be busy next year. US companies will seek to use their strong dollar to do cross-border consolidation deals, whereas the stronger European companies are expected to look at the US for growth opportunities.”
Corporate cash is still close to record highs, with the one thousand largest non-financial companies having $3.1 trillion in cash reserves at the end of the first half of 2014. The M&A Index reveals a shifting preference in choice of deal financing towards stock. In 2012 all cash deals accounted for 75% of activity, which dropped down to 60% in 2014. This was matched by an increase in M&A deals using both cash and stock to complete deals.
O’Flanagan continued: “Many companies have been undertaking share repurchase programmes in the last few years and with the rallies in the stock market, shares are increasingly becoming an attractive currency for acquisitions.”
Withdrawn deals reached $430 billion in the first ten months of the year, the highest since 2008.
O’Flanagan concluded: “While the focus this year has been on a few large withdrawn deals, we found that less than 2% of the announced deals by volume were withdrawn, the lowest in over a decade. This suggests in the current market the investors are more supportive of companies doing the right deal.”
The Deloitte M&A Index is a forward-looking statistical indicator that forecasts future global M&A deal volumes and identifies the factors influencing conditions for deal activities.
* at 18 November 2014
** Irish market statistics sourced from Mergermarket.com
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The information contained in this press release is correct at the time of going to press.