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Last updated: June 29, 2014 10:21 pm
Deal frenzy, animal spirits, merger mania – call it what you like, it is back. The value of global mergers and acquisitions hit $1.75tn in the first six months of the year, a 75 per cent rise on the same period last year and the highest since 2007.
The increase highlights a shift in thinking in the US, Europe and Asia. Risk aversion and organic expansion, embraced after the financial crisis, are being pushed aside as the belief returns that growth can be more easily bought than built.
The value of M&A soared on all three continents during the six months as companies, many flush with cash, took on transactions with vigour.
In the US, M&A announced in the year to date stands at $748.5bn, up almost three-quarters on a year earlier. In Asia-Pacific, deals hit $327.8bn, up 85 per cent and the best year-to-date period for dealmaking in the region since Thomson Reuters began recording the data in 1980. In Europe, M&A is back with a bang: the $509bn of deals announced mark a more than doubling over 2013 levels.
Peter Tague, co-head of Global M&A at Citi, said companies had started to accept that “the volatile world we are in is the new normal – there is always going to be an Iraq or a sovereign debt wobble about to happen somewhere. Increasingly, they are deciding they have to deliver in that environment against a growth imperative that cannot be sustained through cost-cutting and organic activity alone. That leaves us feeling pretty good about the prospects for M&A.”
The rebound has spread across most sectors except financials, where tougher regulation has suppressed appetite. “Availability of debt and low cost of financing are enablers of M&A, but deals remain driven by strategic logic,” Gilberto Pozzi, head of M&A for Europe, Middle East and Africa at Goldman Sachs, said.
Much activity has been in healthcare, with the value of deals reaching $317.4bn in the first six months, the highest recorded and 15 per cent above 2007’s full-year record of $275bn. Many deals have been worth over $10bn, including Medtronic’s $48bn acquisition of Covidien and Valeant’s $62.5bn pursuit of Allergan. The industry would have had an even more remarkable start had Pfizer and AstraZeneca agreed terms.
“The bigger deals have emerged from growing confidence in the boardroom,” Robert Rankin, co-head of corporate banking and securities at Deutsche Bank, said. “A lot of these transactions have been considered for a long time, but the courage to execute them has only returned in the last 12 months.”
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