Conference Presentation, Panel
Is There Mojo in M&A?
- M&A volumes are projected to surge approximately 60% year-to-date, representing a mean reversion to historical averages of roughly 6.8% of market cap and a total volume of about $3.5 trillion over the past 15 to 20 years, with the U.S. up-cycle expected to continue for a few more years.
- Private equity activity is characterized by selling assets at three to four times the rate of new investment, while the current financing environment is described as robust with covenant-lite loans and high leverage that may fuel high prices and poor acquisitions.
- Big Pharma M&A is anticipated to rebound from a 2013 low of one-third of transaction levels back to two-thirds observed 10 years ago, a trend potentially amplified if the AstraZeneca-Pfizer transaction gains traction, increasing the share of the top 10 largest deals relative to global volume.
- Banking and financial services sectors are expected to see a significant increase in M&A over the next few years as regulatory uncertainty resolves, though real estate and financial services may see further consolidation where a dozen of 24 companies could exit over the next three years.
- Non-bank lending organizations are forecast to lose market share as regulatory certainty returns and funds flow back into banks, while venture capital and non-investment grade financing continue to support job creation.
- Financing for strategic transactions is expected to remain available through public BDCs and non-traded vehicles, with BDCs projected to raise $9 billion this year compared to $4.5 billion last year; strategic buyers like Comcast may fill gaps where conventional LBOs face financing constraints.
- LBO sizes are not expected to return to the mega-deal levels of 2007 and 2008, with expectations that far fewer large deals will occur due to perceived ill-conceived risks, and hard asset spreads may compress by about 100 basis points alongside rising interest rates.
- Emerging markets face challenges from current account deficits and governmental issues despite remaining opportunities in specific areas, while non-Western European and Japanese buyers are expected to show very low willingness or ability to transact in the U.S. due to structural, cultural, and regulatory impediments.
- Activist funds are considered a fundamental component of the North American landscape with expected development across Europe, whereas the return of activist campaigns in Japan remains uncertain following a recent abatement.
- Regulatory capital requirements may significantly impede banking M&A, as every dollar of goodwill necessitates an additional dollar of regulatory capital, and Pfizer may consider re-domiciling to the UK, though such domicile changes are noted as less critical for international corporations like Sanofi.