From pharma to finance, dealmaking in 2018 is on fire around the globe. Just three weeks into the year, the value of mergers announced totals $152.5 billion. That’s the highest since the $374 billion racked up in the same period during the technology deal frenzy in 2000, according to data compiled by Bloomberg. While clouds loom, bankers say the U.S. corporate tax cut, robust economies and rising stock markets are giving executives confidence to sign off on billion-dollar transactions — and in some cases, to pay rich prices.
North American companies, which fell out of favor among acquirers last year, are back on the shopping list in 2018, making up almost 60 percent of all announced transactions so far, the data show. Dominion Energy Inc.’s acquisition of South Carolina-based Scana Corp. in a deal valued at about $14.5 billion including debt is the biggest purchase of the year so far. In the insurance industry, American International Group Inc. agreed to pay $5.56 billion to purchase British reinsurer Validus Holdings Ltd., its largest standalone acquisition in 17 years. And Celgene Corp. made one of its biggest deals ever with the $9 billion acquisition of Juno Therapeutics Inc., placing a costly bet on cutting-edge cancer treatments.
That transaction showed that CEOs aren’t afraid to pay up to get what they want, even with record equity markets pushing valuations higher. Celgene is paying $87 a share for Juno — 91 percent above the company’s closing price on the last trading day before reports that the companies were in talks. That’s the third-highest premium for a deal worth $5 billion or more between U.S. companies since 2008.
European targets have been less attractive, accounting for $32.4 billion in mergers so far. But after months of searching for an acquisition, Sanofi finally sealed an agreement on Monday — it’ll acquire hemophilia drugmaker Bioverativ Inc. for about $11.6 billion. “Large corporates have been active thanks to stronger economic growth, well-oriented stock markets and shareholders who are receptive to transformative transactions,” said Guillaume Molinier, a managing director at Lazard Ltd., based in Paris. “The rise of activism has also been in some occasions a catalyst for M&A transactions.”
The 2018 acquisitions announced so far could easily be eclipsed if one of the most-anticipated tie-ups goes ahead: Shari Redstone, vice chairman of CBS Corp., is once again pushing for a merger with Viacom Inc. to combine the two companies her family controls. Still, CEOs across industries are closely watching the Justice Department’s effort to block AT&T Inc.’s proposed $85.4 billion takeover of Time Warner Inc. If the lawsuit, scheduled for March 19, is successful, it could deter other executives from pursuing takeovers — especially very large, headline-grabbing ones.
Macro economic factors could also slow activity, according to Goldman Sachs’s Scher.
“One thing that could cause the music to pause will be a huge correction in the equity markets,” she said. “The other thing is if we start to see signs of accelerating inflation and the Fed begins to move quickly to raise rates.”
Sources and Photo-credits: Bloomberg with assistance by Michael Hytha