Q1 Witnesses Consolidation Wave With All-Time High Global M&A
Buoyed by the tax reform in the United States and a resurgent Europe, first-quarter 2018 recorded an all-time high tally of $1.2 trillion for global mergers and acquisition (M&A) activities. This portrays an intense consolidation wave across diverse markets, as most firms aim to capitalize on bullish macroeconomic sentiments to pursue transformative deals.
According to Thomson Reuters data, M&A surged 67% year over year although total number of transactions declined 10% to 10,338. This implies that the average deal size increased with clarity on tax and solid equity and debt markets, all of which swelled corporate cash coffers and helped top management to loosen the purse strings. The transactions were also not concentrated in any particular geographic region and were well spread out as M&A volume doubled in Europe, while increasing 67% and 11% in the United States and Asia, respectively.
A $67 billion deal inked by U.S. health insurer Cigna Corporation CI to acquire pharmacy chain Express Scripts Holding Company ESRX was the biggest M&A deal in the quarter. This was followed by a $38.5 billion deal by German energy firm E.ON SE to acquire the renewable energy business of RWE Aktiengesellschaft.
Despite the game-changing transactions, the quarter witnessed intense volatility in equity markets as U.S. President Trump imposed trade tariffs on Chinese goods. This perhaps robbed some companies suitable acquisition opportunities as corporate valuations remained high and management became more cautious to trade at inflated price levels.
Regulatory risks also increased during the quarter as exemplified by the heightened threat perceived by the U.S. government in the proposed hostile bid by Singapore-based Broadcom Limited AVGO for domestic chip-maker QUALCOMM Incorporated QCOM. The transaction was blocked on concerns of national security as government feared that it would lose its technological prowess to the Chinese counterparts.
The quarter further witnessed uncertainty on antitrust activities as the U.S. Department of Justice thwarted the $85-billion deal by AT&T Inc. T to acquire Time Warner Inc. TWX. Concerns were raised about how the deal would affect two different sectors and the deal, therefore, was summarily rejected.
Nonetheless, the first quarter made a perfect start to the year and is likely to give more firepower to the government as well as to top management of firms to pursue more strategic transactions and swim with the tide.
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