The world of mergers and acquisitions has been heating up so far in 2014, with a number of billion-plus dollar deals already taking place and others in the works. According to one source, worldwide M&A volume was about one trillion dollars so far in the second quarter of 2014. As business confidence is rising, companies find that they have considerable cash stockpiles and nicely valued equities, plus financing costs are relatively low thanks to easy monetary policy. One of the recent trends is that more funding is coming from equity than from cash, compared with deals closing before the recession. Such terms would protect companies more from the risk of an economic downturn. The deals are taking place across a number of industries.
There has been a lot of activity in the world of healthcare, helping to pump up the M&A volume figures. Pharmaceuticals giant Pfizer (PFE - Free Pfizer Stock Report) expressed its interest in buying United Kingdom-based AstraZeneca (AZN), but was rebuffed. Such a deal would have been valued at over $100 billion. One motivation behind the combination may have been the tax benefits associated with AstraZeneca’s incorporation in the United Kingdom.
Elsewhere, GlaxoSmithKline (GSK) and Novartis (NVS) have announced a complex swap, trading more than $20 billion worth of assets. Commentators reacted positively to the move, potentially setting the stage for more complex deals like this. Novartis got GSK’s cancer drugs, while GSK received Novartis’ vaccines business.
Valeant Pharmaceuticals (VRX) and William A. Ackmann, manager of the hedge fund Pershing Square Capital Management, announced plans to up a recent unsolicited bid for Botox maker Allergan (AGN). The last reported offer was for about $50 billion. In other news, Zimmer Holdings (ZMH) agreed to acquire privately held Biomet Inc. for $13 billion.
Telecom is also a hot market for M&A deals. Time Warner Cable (TWC) is looking to merge with Comcast (CMCSA). The merger would be worth about $45 billion and create a behemoth that serves 30% of cable customers in the United States. The deal is currently undergoing regulatory review and Congressional hearings. Furthermore, AT&T (T - Free AT&T Stock Report) has agreed to buy out DIRECTV (DTV) for almost $50 billion. Consolidation in the telecom world has been going on for decades, but this has been a particularly active year.
Technology is another hot sector. Confidence here is high. The NASDAQ is at levels unseen since the early 2000s, while real estate is getting pricier in tech hotbeds like the Bay Area. Facebook (FB) made headlines when it purchased the messaging app WhatsApp for $19 billion. Another high profile deal is the acquisition of Beats Electronics LLC, the maker of Beats by Dre headphones, by Apple (AAPL) for $3.2 billion.
In the automotive world, Volkswagen (VLKAY) has fully taken over the Swedish truck maker Scania AB. Also, FIAT (FIATY) and Chrysler brands are to be reorganized under a new name, Fiat Chrysler Automobiles.
Looking at some major conglomerates, General Electric (GE - Free General Electric Stock Report) wants to buy French company Alstom SA, but the French government would rather see a deal with Siemens AG of neighboring Germany.
As if that weren’t enough for investment bankers, IPO activity is also busy. One of the biggest IPOs of all time will likely be the offering of China-based Internet company Alibaba. The company will probably be valued at over $100 billion, according to recent reports.
There is no end in sight for the M&A activity. Names will change and brands will be reshuffled. While multiples may still be reasonable by some metrics, some of the tech acquisitions look a bit frothy. Nevertheless, the increasing M&A activity may be taken as a sign of an improving broader economy.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.