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Global dealmaking this year crossed the $1tn mark on Tuesday, the fastest it has ever reached that level, as a wave of consolidation spreads across the US and activity in the UK, China, Germany and Japan accelerates.
Buoyed by quickening economic growth and strong business confidence, bankers have cut a string of $10bn-plus deals in 2018. Tax cuts passed in Washington last year have provided an accelerant, as boardrooms reassess the amount of capital they can plough into acquisitions.
Deals this year include US health insurer Cigna’s $67bn takeover of pharmacy benefits manager Express Scripts, German utility Eon’s acquisition of renewable energy group Innogy for €43bn, and Comcast’s £22.1bn bid for pan-European media group Sky.
“The environment remains ideal for a robust M&A market globally,” said Blair Effron, co-founder of Centerview Partners. “Growth is strong globally, business leaders remain optimistic, financing markets are co-operative and competitive disruption is impacting most every industry.
Dealmaking is up more than 50 per cent from a year ago and 12 per cent higher than at the same point in 2007, which remains the high water mark for mergers and acquisitions with deals totalling more than $4.6tn announced in the year, according to data from Dealogic.
Activity in Japan and the UK has more than doubled from a year ago while German M&A volumes are up fourfold, according to the data provider.
Even as investors question the durability of the business cycle, dealmaking is running ahead of the pace before the financial crisis or during the dotcom boom and bust. The US economic expansion, which slowly took form after the financial crisis, is among the longest in the country’s history.
“We are at a unique point where every economy in the world is growing but nothing is growing blockbusters,” said Anu Aiyengar, head of JPMorgan’s M&A business in North America. “The ability you have to do M&A to drive growth is tremendous and the market seems to understand that.”
Leon Kalvaria, a veteran rainmaker and chairman of Citigroup’s institutional clients business, said companies were on the hunt for sales growth and ways to cut costs — two priorities that were propelling dealmaking. The US corporate tax rate cut to 21 per cent and change allowing companies to tax-efficiently repatriate cash held overseas, were also fuelling activity, Mr Kalvaria added.
Companies — as well as private equity sponsors — have been willing to think big on recent deals. The average transaction size hit a record $131m this year, reflecting the “transformative” moves businesses are undertaking, according to Anton Sahazizian, who heads US M&A for Moelis & Company.
Even as regulatory hurdles have presented a greater challenge to dealmaking, with chipmaker Broadcom’s $142bn hostile bid for rival Qualcomm quashed by US President Donald Trump, executives have shown a willingness to undertake complex takeovers.
Paul Jacobs, Qualcomm’s former chief executive, is exploring a deal to take the US group private, a deal that could include more than $100bn of debt, and bankers say the pipeline of deals is strong.
“The combination of cash from tax cuts, growth challenges, hostile activity will be a recipe for record levels of M&A,” said Bill Anderson, a banker at Evercore.