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Transcript of M&A Insights Q4 2015
7/21/2019 M&A Insights Q4 2015
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Insights, Q4 2015
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8
28
18
Regional insights
9 U.S.
10 Western Europe
11 CEE and CIS
12 Middle East and North Africa
13 Sub-Saharan Africa
14 India
15 Latin America
16 Asia Pacic
A global snapshot
28 Top 20 global outbound acquirers
and inbound target markets
30 Top target markets for the
world’s largest acquiring countries
Sector insights
19 Consumer
20 Energy and Infrastructure
21 Financial services
22 Life sciences
23 Mining
24 Private equity
25 Telecoms, media and technology
6
In focus
6 Hostile M&A –
a notable feature of 2015
4Executive summary
4 Executive summary
5 Global M&A in numbers
Contents
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Investors have continued to hold their nerve amid signs of growing economic and political uncertainty, with big-ticket M&A deals pushing transactions to record levels.
Executive summary:Investors push deals to record levels
2015 HIGHLIGHTS INCLUDE:
RECORD-BREAKING YEAR FOR GLOBAL M&A
With the deal-making environment remaining strong,transactions in 2015 have risen to record levels and weend the year ahead of the previous M&A high of 2007.
CROSS-BORDER ACTIVITY ON THE RISE
With globalisation continuing to be a major driver ofM&A, cross-border deals have accounted for arounda third of all total deals this year – a trend that wethink will persist in 2016.
MEGA-DEALS TO THE FORE
Big-ticket transformational M&A deals have been adominant theme. 2015 ended with both the USD130bnmerger of The Dow Chemical Company and E. I. duPont de Nemours, as well as the proposed USD160bnmerger of Pzer and Allergan, the largest singletransaction of 2015 and the biggest pharma deal ever.
POWERFUL U.S. PERFORMANCE
The U.S. market continues to power ahead in anextraordinary way, providing the rocket fuel forgrowth in other key regions.
HAVE THE LIFE SCIENCESREACHED A PEAK?
With some USD980bn worth of deals done in the lifesciences sector in the last two years, the questionis: will investors now take a pause for breath while arange of massive deals are digested? The jury is out.
GROWING BOARDROOM CONFIDENCE
Ready availability of debt nance, record levels ofcorporate cash, supportive shareholders, and, perhaps,a determination not to be left behind, has givenboardrooms the condence to pursue signicant strategictransactions across a growing number of sectors.
PE RETURNS TO THE BUYOUT MARKET
After several years focussing mainly on securing exits,PE funds are now once more returning to the buyoutmarket and contemplating increasingly complex deals,backed by record levels of funding.
TAX STILL A DRIVER
Despite growing opposition from across the politicalspectrum, U.S. companies are still looking to dotax-driven deals – including inversions – with theaim of investing overseas earnings rather thanrepatriate them and face a high tax bill.
CHINA’S PRIVATE COMPANIES SEEKOUTBOUND OPPORTUNITIES
As the deployment of Chinese capital across the worldincreases, privately-owned companies are increasinglylooking for outbound opportunities and are provingmore eet of foot than big State-owned Enterprises.
CONTINUED GROWTH IN 2016?
Big ticket M&A looks set to continue. We alsoexpect to see the ripple effect of those mega dealslead to an increase in mid-size M&A as businessesreshape their portfolios and dispose of non-coreassets. PE will be a major buyer as thesedivestments come onto the market.
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Global M&A in numbers 2015
Note: These gures represent the total number of deals announced between 1 January 2015 and 11 December 2015.
Deal volumes by region
Top 5 sectors by value (USD)
Activity by deal value (USD)
Region% of dealsby region
Western Europe 33%
U.S. 28%
Asia Pacic 14%
Greater China 13%
CEE and CIS 3%
India 3%
Latin America 3%
MENA 1%Sub-Saharan
Africa1%
Other 1%
Over
25%
Less
than
10%
Between
10% and
25%
28%
13%
33%
3%
3%
3%1%
1%
Increase in megadeals
USD5bn +
599bnLife sciences
536bn
Energy
491bnConsumer407bn
FinancialServices
735bn TMT
96DEALS Q1-Q4 2014 131DEALS Q1-Q4 2015vs
0-500m
500m-1bn
1-3bn
3-5bn
5bn +
88%
5%
4%
1%
2%
14%
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Hostile M&A –a notable feature of 2015The return of big-ticket M&A has brought with it anotable number of high-prole hostile and semi-hostile
public M&A deals.
But just how common are they and in which countriesare they occurring? How are they being structured?What factors are inuencing deal outcomes?
And nally, how do they play out?
T
his year, there have been around
56 hostile/semi-hostile deals globally1.
This is similar to last year, though the
overall proportion of these types of
deals to recommended deals remains low globally.
That said, hostiles and semi-hostiles are a notable
xture of some markets.
One standout market is the U.S. where hostile bids
remain a common tactic, despite them rarely being
successful. A typical outcome in the U.S. is that
as a result of putting a target in play, the target
will end up being acquired by a white knight.
Given the signicant role that activist investors
have been playing in driving corporate policy,
including proposals to dismantle traditional and
common defences such as shareholder rightsplans, we expect levels of hostile bid activity to
remain signicant in this market.
Australia and the UK have also seen notable
numbers of hostile/semi-hostile deals in recent
years. In the UK, in particular, “bear hug” proposals
(ie where a potential bidder announces a possible
offer for a target conditional on the target board’s
recommendation but without the target’s backing)
have been more common and have involved
potential bidders appealing to target shareholders
to put pressure on their boards to engage.
Big international players have been eager to
elicit co-operation and ultimately securerecommendations where there may be signicant
antitrust issues and where, therefore, co-operation
from targets is either desirable or necessary. The UK
‘put up or shut up’ rules and the prohibition of deal
protection arrangements in favour of bidders have
given targets considerable leverage in negotiations,
so even where they have ended up recommending
a deal, in some cases they have been able to extract
substantial break fees (or so-called reverse break
fees) and other deal protections as a price for their
recommendations. For example, in AB InBev/
SABMiller, AB InBev has agreed to pay a USD3bn
reverse break fee in certain circumstances.
In contrast, France, Germany, Singapore andHong Kong have seen low levels of hostile bid
activity in recent years and one important
inuencing factor for this has been structural
issues. Companies are often closely held in
France, Singapore and Hong Kong, which
makes it difcult to execute hostile offers
successfully. While in Germany, it can be
difcult for successful hostile bidders to obtain
management control because of restrictive rules
on the appointment and removal of directors.
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Regional insights, Q4 2015
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Regional insights No other region has performed as strongly as the U.S. in a record-breaking year fortransactions, but that performance has had a knock-on eect in Western Europe and Asia.
Deals may not be as huge, but big-ticket strategic M&A still dominates these markets too.
U.S.
Big deals predominate
The 2015 global M&A boom that has lifted global
transaction values above their previous 2007 high has
been underpinned by continued strong growth in activity
in the U.S. market.
And with 2015 drawing to a close with both the USD130bn
merger of The Dow Chemical Company and E. I. du Pont
de Nemours, as well as the proposed USD160bn merger
of Pzer and Allergan, the largest single transaction of
2015 and the biggest pharma deal ever – the signs are
we will see more of the same in 2016. An overriding theme of the year has been the
predominance of big strategic deals in the U.S. market,
a trend that includes notable transactions in the life
sciences and TMT sectors but also reects strategic
consolidation in other industries, including food,
drinks and beverages, retail and energy.
The boardroom condence to do these mega-deals
has been supported by strong economic fundamentals,
low interest rates, ready availability of debt nancing and
strong corporate cash balances. Countervailing trends
such as the effects of a slowing Chinese economy and
signicant geopolitical risks have not so far caused
dealmakers to lose their nerve.
A consistent theme for these deals has been securing
cost synergies, greater efciencies and the benets of
economies of scale. But they separate out into both
offensive and defensive strategies.
In industries challenged by disruptive forces, one of
the principal motivations for transformational deals
has been defensive. Most companies serving the
energy and resources sector face the challenge of
coping with sharply lower oil and other commodity
prices and are seeking ways to reduce costs including
through operational synergies – one of the reasons
cited by management for pursuing the USD33bn
takeover of pipeline operator Williams by Energy
Transfer in the third quarter.
Similarly, in the cable TV industry, threatened by the
growing tendency of customers to cut the cord and opt
for streamed, on-demand content, the desire to build
scale and compelling programming has never beengreater – a signicant factor behind the proposed
USD55bn merger of Time Warner Cable and
Charter Communications.
Elsewhere and across sectors, companies have gone on
the offensive, seizing the moment to seal transformational
deals that reinforce their market position and offer the
chance to control costs and deliver extra value to
shareholders. Having taken his eponymous company
private, Michael Dell and his partners at Silver Lake
agreed to buy EMC for approximately USD67bn, driven
in large part by the hope that the combination in private
hands of hardware and software will create a formula for
success in a rapidly evolving technology sector. Activists continue to play an important role as a catalyst
for M&A. Carl Icahn has argued that American
International Group should be split three ways, while
JANA Partners is pressuring Qualcomm to split into two.
The boardroom condenceto do these mega-dealshas been supported
by strong economicfundamentals.
The Pzer/Allergan transaction demonstrates that tax
inversion deals remain achievable, despite growing political
opposition and efforts by the authorities to close
loopholes, which are likely to increase now. But for U.S.
companies that earn a signicant proportion of their prots
overseas and are reluctant to repatriate those earnings
only to face a hefty tax bill, the search for mergers that
allow them to achieve these tax gains will continue a while
longer. The question is can they nd ‘merger of equals’
candidates outside the U.S. that allow them to meettighter requirements for inversion transactions.
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Despite high prole deals such as Carlyle’s acquisition of
Veritas from Symantec, less PE fund activity in the U.S. is
focused on new buyouts – a contrast to other markets,
like Europe, where funds are once more seeking
opportunities to deploy their arsenal of dry powder.
Having said that, some of the year’s larger deals have
been driven in part by funds, not least the giant Heinz/
Kraft merger and the USD66bn enterprise IT tie-up
between Dell and EMC.
The U.S. market enters 2016 on a very strong note
that for the moment, at least, shows no signs of agging.
Commodity deals may be hampered by further declines
in commodity prices that could cause a mismatch
of buyer and seller expectations, tech deals may befrustrated by overvaluation on the equity markets,
and the progress PE funds make will be dependent
on the effect of the rise of the interest rates. But overall,
the drive for cost synergies and economies of scale,
plus activist pressure, appear set to keep transactions
moving ahead.
WESTERN EUROPE
Will growth peak?
The impetus provided by the powerful U.S. M&A market
has certainly had a knock-on effect in Western Europe
with transactions growing strongly throughout the year,
dominated by big strategic deals.
In Germany the growth was particularly strong in the rst
half of 2015, but reached something of a plateau in the
last six months. Big-ticket deals here were matched by
growing activity in the mid- and small-cap markets,
where strong pipelines have built up. PE funds remained
active during the year, although they continued to be
reluctant to take on condent, well-nanced corporates
with the repower to price in synergies.
Hostile M&A, rarely a feature of the German market,also became more apparent as the transactions
market grew, as we saw with Potash Corp’s ultimately
unsuccessful USD8.8bn bid for K+S. Vonovia also
intervened in a long-running real estate battle,
bidding EUR10bn for its smaller rival, Deutsche Wohnen
and forcing it eventually to drop its own EUR4.6bn
bid for LEG.
Here, as elsewhere in the region, the main motivating
factors behind higher activity have been the availability
of debt and a surplus of corporate cash needing to be
invested, as well as a realisation by boards that M&A
offers the fastest way to grow in a relatively low-growth
environment. Unlike in the UK and the Netherlands,German investors showed growing nervousness about
the capital markets as the year wore on, however.
By contrast the successful IPO of Dutch bank ABN Amro
was widely seen as a mark of growing condence in the
wider economy. There had been some doubt about
whether this transaction would go ahead successfully,
but the rst offering of shares raised EUR3.3bn as the
Dutch government began recouping money invested in
rescuing the bank during the nancial crisis. More widely,
we’ve seen more IPO activity here than for a number
of years.
Standout big-ticket M&A deals during the year included
the proposed GBP47bn Shell/BG transaction and the
giant USD120bn brewing merger between AB InBev
and SABMiller, alongside transformational cross-border
deals such as the strategic tie-up between the main
bottlers of Coca-Cola in Europe.
There has been a sharp uptick in activity by inbound
investors, notably from the U.S. and from privately
owned Chinese companies prepared to bid aggressively
for sought after assets. Their interest is across sectors
but is particularly focused on distressed assets that can
be bought relatively cheaply. A weaker euro has affected
valuations, but other factors are at play here for Chinese
companies – a desire to diversify into new markets
and the search for brands and technologies that can
be exploited at home.
There has been a sharpuptick in activity by inboundinvestors, notably from theU.S. and from privatelyowned Chinese companiesprepared to bid aggressivelyfor sought after assets.
And as the giant USD160bn Pzer/Allergan deal proved,
U.S. companies – particularly those with strong
overseas earnings – are still looking for inventive ways to
do tax inversions despite growing political disapproval at
home, with Ireland and the UK seen as key jurisdictions
in which to redomicile.
TMT was one of the most active sectors in the Italian
market during 2015 and the announcement of the
acquisition by billionaire Xavier Niel of a EUR1.7bn stake
in Telecom Italia S.p.A., Italy’s largest phone company,
conrmed this trend. We expect further developments in
2016, including examination of the merger between
Hutchison Whampoa’s 3 Italia and Vimpelcom’s Wind,
and Telecom Italia’s asset sale strategy to reduce a debt
load of some EUR27bn.
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The fourth quarter of 2015 has followed the general
trend of the previous three, with Italian M&A dominated
by investments in medium-sized companies, especially
in retail, food and consumer goods, including clothing.
There have been several signicant energy deals –
approval for the integration of Enel Green Power into
Enel, for instance, and Fondo Strategico Italiano’sagreement to acquire a 12.5% interest in Saipem
S.p.A. from Eni. Real estate has also been busier.
Following the part privatisation of Enel and Poste
Italiane’s IPO, we expect state sell-offs will continue
in 2016. Ferrovie dello Stato has ofcially started its
40% privatisation process and ENAV’s 49% stake
will probably be listed in the rst half of the year.
By and large, it seems investors seem to have any
macro-economic fears under control although the
upcoming UK referendum on EU membership could
prove increasingly disruptive if a vote for Brexit looks likely.
More immediately, emergency measures to counter the
terror threat could have a bigger impact on condence.
Against that background the outlook for 2016 looks
somewhat mixed. Boardroom condence to do deals
seems largely undiminished, cash and nancing remain
readily available and the economic environment remains
good for transactions. However, with so many big
transactions completed in 2015, we could see some
investors take time out to digest those deals. In Germany
there is also a chance that diminished condence in the
capital markets could lead to a growing wariness among
M&A investors.
But with globalisation still a main driving factor behind M&A
activity, we are condent that the outlook for signicantcross-border transactions will remain positive in 2016.
CEE AND CIS
New signs of life?
In early 2015, the political instability generated by theUkraine crisis had an impact well beyond Russia’s
borders, depressing investor enthusiasm and dampening
M&A activity across the CEE region as well. But as 2015
progressed, that changed, with a number of markets in
Central and Southern Eastern Europe showing new
signs of life.
We expect that decoupling to continue in 2016,
with activity in Russia continuing at a relatively low ebb,
but with the CEE region experiencing faster growth amid
increasingly strong economic fundamentals in some key
economies. We saw transaction activity across C&SEE
in 2015 being dominated by the TMT sector, with other
transactions in traditional sectors of energy and nancial
services still playing a big part, though less so than in
previous years. Consumer/retail and healthcare are
also strong alongside a resurgent real estate sector.
We would expect these trends to continue.
Nowhere is that more true than in the Czech Republic,
currently enjoying strong GDP growth and low
unemployment and seeing a resurgence of signicant
M&A activity in key sectors. Standout deals in recent
months have included the EUR1.25bn acquisition of
Czech tyre maker CGS by Swedish industrial
conglomerate Trelleborg and Rockway Capital’s
EUR200m acquisition of the Czech Republic’s second
biggest e-commerce operator, Mall, and the price
comparison service, Heureka.
The main motivating factors behind higher activity
have been the
of debt and a surplus of corporate cashneeding to be invested.”
availability
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Events in Hungary continue to be dominated by the
government’s strategic ambitions, including in particular
the renationalisation of key assets, notably in the energy
and utilities sectors. There has also been a slew of
acquistions in the nancial institutions sector, as well as
the exertion of increasing inuence over the media sector
including, indirectly, media M&A. Its stance on energy
and utilities is unlikely to change much in 2016 – it
remains convinced that it needs to exercise greater
control over these key assets.
But we could see some sort of shift where banking is
concerned. Some believe the government’s plan to
work alongside the European Bank of Reconstruction
and Development to buy stakes in Erste Bank Hungary
could mark a turning point and that 2016 could see it
once again opening the door to private investment in the
sector, rolling back some of its acquisitions (a process
which has to some extent already started). Otherwise, we
see a lot of activity being considered through an increasing
number of joint ventures and private equity starting to look
at Hungary again, after a hiatus.
Elsewhere in the region the trend for governments to sell
assets to raise much needed funding continues although
the process is not always smooth, as we have seen with
the failed sales of both Telekom Slovenia and Telekom
Srbija. PE funds are once again circling the market, many
looking for new investment opportunities outside
well-mined economies such as Poland. Sales of
non-performing loan portfolios are also a feature with
processes already started in Slovenia and expected
soon to go ahead in Serbia and Croatia.
Sanctions, poor economic growth, depressed oil
prices and political interference continues to depress
activity in Russia, although it’s fair to say that there is
sufcient stability in this new environment to encourage
some investors to seek out opportunities.
A number of marketsin Central and SouthernEastern Europe areshowing new signs of life.
With access to Western nancing effectively blocked
off by sanctions, Russia is increasingly looking to other
regions for funding, not least China, India and the Middle
East. Some outbound investment continues – as we’ve
seen with Rosneft’s continued investment in the German
rening sector, alongside its existing joint venture with BP
there. Inbound European and U.S. investment is subject
to signicant delay and even cancellation, however.
Privatisation remains on the cards, but we do not expect
to see much progress on this in the near-term particularly
at a time when assets are likely to be considerably
undervalued. Any such moves in 2016 are likely to
be one-off transactions, rather than part of a wider
programme of state sell-offs.
MIDDLE EAST AND NORTH AFRICA
Consolidation continues
The nal quarter of 2015 opened with a drop in deal
volume while values inched higher, albeit down against
the same period in 2014. The majority of deals were
smaller in scale, with the trend of consolidation and
strategic transactions seen in earlier quarters continuing,
through acquisitions of minority stakes and increases in
existing shareholdings.
Economic growth in theregion, together with positive
demographic trends andproximity to expandingmarkets in Africa, are alllikely to be instrumental incontinuing to attractinternational investors.Global market volatility and continuing regional political
turmoil inevitably have had an effect on investors, but they
are for the most part holding their nerve. Cash and liquidity
levels in the region, particularly in the Gulf CorporationCommunity (GCC), remain high, largely as a result of years
of high oil prices. On the whole, governments in the GCC
have sufcient reserves to remain committed to key
projects. GCC-based corporates appear to be eyeing the
wider MENA region for opportunities not only to increase
returns and get a foothold in less developed markets
within MENA, but also to reduce their reliance on domestic
markets. The region’s sovereign wealth funds are also
engaging in deals which are more strategic, investing
money with the aim of providing income for future
generations as part of a general diversication strategy.
There is improving condence amongst market
participants, both globally and regionally. There is afeeling that those regional economies dependent on the
hydrocarbon industry are weathering the storm and that a
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good pipeline is developing, particularly in the UAE. There
are also signs in the market that valuation expectations are
becoming more reasonable, which, when coupled with the
availability of cash and nancing, should help create an
environment where more deals are done.
Economic growth in the region, together with positive
demographic trends and proximity to expanding markets
in Africa, are all likely to be instrumental in continuing
to attract international investors, particularly in the
face of fewer opportunities in the U.S. and in Europe.
Saudi Arabia, the UAE and Egypt were among the
most active countries during Q4, with Egypt continuing
to emerge as an attractive destination for overseas
investment. Whilst regulatory complexities in some
parts of the region can act as a deterrent for investors,
Egypt has recently introduced policies friendly to
business. It is currently enjoying increased political
stability and as a net oil importer is believed to be
benetting from the continuing lower oil prices.
Elsewhere in the region, the opening of the Saudi
Stock Exchange to foreign investors may also lead
to an increase in cross-border activity.
International PE investors’ interest in the region continued
in Q4. In one of the stand-out deals of the quarter,
U.S.-based PE houses Warburg Pincus and
General Atlantic announced a deal to acquire 49%
of Network International (NI) from a consortium led
by the Abraaj Group. NI is the largest payment processor
in the region. It is believed to be the rst investment by
General Atlantic in the region, whilst Warburg Pincus has
already shown its interest in the region with its acquisition
of a majority stake in Dubai-based Mercator last year.
In one of several deals in the healthcare sector during
the quarter, UAE-based Aster DM Healthcare increased
its 40% holding in Saudi Arabia-based Sanad Hospital
to 97%, for a consideration of USD245m. The healthcare
sector has led Saudi M&A activity this year, a reection
of the increased demand for services in this sector
that local population growth is creating. Activity in
the telecoms sector is expected to continue and,in another Saudi-related deal, Saudi Telecom announced
its intention to make an offer to increase its 26%
shareholding in Kuwaiti mobile operator Viva to 100%.
The deal would be worth approximately USD1.1bn and is
subject to consent from the Kuwait Capital Markets
Authority. Viva is Kuwait’s second largest telecoms
operator and was listed on the Kuwait Stock Exchange in
December 2014.
With the ease of doing business in many countries
in the region increasing and a good ow of deals in
the pipeline, the outlook is positive and, despite the
challenges, there are certainly opportunities to be had.
SUB-SAHARAN AFRICA
Preparing for future growth
Dealmaking activity in the region has been relatively
muted throughout 2015, but as the year draws to a close
there are signs of increased activity in key markets and
sectors. With increased levels of capital being built up to
invest across the continent, 2016 should be a livelier
period for transactions.
A disappointing performance in 2015 is, however,
understandable. Investment into Africa has traditionally
been primarily focused on the resources sector and
so the fall in oil and other commodity prices and a
slackening of demand from key markets, notably China,
has hit Africa particularly hard.
In certain markets the global decline in commodity
prices has been exacerbated by local difculties.
South Africa, for instance, remains a tricky market
for resources investment, thanks to government
interference, labour problems and regular power
outages, all of which continue to be problematic
for the mining and energy sectors.
Other traditionally strong sectors are faring better,
however, notably telecoms where we continue to
see a good stream of both infrastructure deals and
the sort of consolidation between operators that
has become such a feature in European markets.
Investment in power andtransport infrastructureremains a pressing need
across the region and apotential key focus forinbound investment.
This year we’ve seen Sweden’s Millicom become
the second largest operator in Tanzania, having acquired
an 85% stake in Zantel from the UAE telecom operator,
Etisalat. PE Fund Helios has also acquired a 70% stake
in Telkom Kenya from Orange for an undisclosed sum.
Further deals are on the cards in the year ahead.
Investment in power and transport infrastructure
remains a pressing need across the region and
a potential key focus for inbound investment.
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Such investment can act as a real spur to economic
growth but requires governments to create the right
legal and commercial frameworks for projects to
proceed. In South Africa we expect the government
to clarify its approach to inward investment in a number
of crucial areas, not least foreign ownership of land,
which should, hopefully, boost investor condence.
Investment in less traditional areas – consumer goods,
retail and nancial services – is also full of potential,
as economies grow and the middle-class expands.
A number of PE Houses have established specialist
Africa funds to pursue opportunities, including Carlyle,
KKR, Blackstone, Helios and Dubai-based Abraaj.
The appetite to invest is certainly there but a scarcity
of good assets remains an obstacle, albeit probably
a relatively short-term one.
Investors within the region are also looking for
opportunities across the continent and overseas.
South African investment house, Brait, for instance,
completed two important UK deals during the year,
acquiring fashion retailer, New Look, and a controlling
interest in Virgin Active, the health and leisure business.
A further deal involving Brait was its sale, together with
the Titan Group, of 92.34% of Pepkor, to Steinhoff
International Holdings.
We continue to see capital owing more freely withinthe region. Nigeria’s ambitious industrial conglomerate,
Dangote Group, has announced plans to expand its
operations, particularly cement making, into a number
of African countries.
As the year ended we also saw South Africa’s Sanlam
spend USD375m to acquire a 30% stake in Morocco’s
Saham Finances as part of an effort to nd new North
and West African markets for its insurance products
to offset slower growth at home.
With key African economies forecast to see some
of the highest growth in GDP in the coming years,
we continue to believe that the current dip in transactions
activity will be short-lived, with activity beginning togrow again, both in terms of M&A deals and
IPO activity, starting in 2016.
INDIA
Growth slowly builds
High expectations that the 2014 election of a majority
government, led by Narendra Modi, would lead to a
period of rapid economic reform and a return to strong
growth were, perhaps, always a little overblown and themonths since have proved that to be the case.
The government continues to make progress with its
reform agenda, but it has proved harder to push through
measures than many had expected and that has
translated into some investor uncertainty and fairly
sluggish growth in the M&A market.
2015 saw the volume of M&A deals climb to 442,
with energy and natural resources, life sciences,
IT and IT enabled services being the busiest sectors
for transactions. With deal values at USD37.1bn this is
a robust performance compared with many other
emerging markets.
Activity by PE rms, however, has been much stronger
this year with funds deploying capital across a wide
range of sectors. Indeed there were an estimated
462 PE deals in 2015 worth some USD13.6bn,
a 40% increase in value on the same period last year.PE deals done so far in 2015 have included some of a
very good size, including Carlyle’s USD500m investment
in Magna Energy, the upstream oil and gas company,
and DST Global’s USD400m investment in Olacabs,
the online cab and car rental group owned by
Mumbai-based ANI Technologies.
We expect the overallposition to improve
in 2016.We expect the overall position to improve in 2016,
with PE continuing to make a strong showing and
corporate transactions picking up too.
But progress is likely to be relatively slow and much
will depend on the government’s success in making
further progress with important reforms to attract
foreign investment.
That effort has not been helped by recent regional
elections in Bihar, India’s third most populous state,
which saw Mr Modi’s BJP party suffer an unexpected
and fairly convincing defeat. While some believe that hastaken some of the momentum out of the reform agenda,
there is little sign of the government changing course and
the expectation remains that crucial new legislation will
still make it through Parliament.
One measure is particularly important – the introduction
of a national goods and services tax to replace a
complex system of regional taxes. A bill to introduce
the tax is pending.
The government’s Make In India campaign – smoothing
the way for foreign manufacturers to invest in ventures
in India – should also have an important and benecial
impact on direct investment and feed through to higher
levels of transactions. Mr Modi’s commitment to makinga success of this campaign has been underpinned by
an almost non-stop round of foreign missions to attract
investment and open new trading routes during his rst
18 months in power.
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LATIN AMERICA
Awaitinga turnaround
2015 was a difcult year for transactions across Latin
America, as a range of economic and political issues
conspired to dampen investor condence in the region.
Despite the Presidential elections later in 2015 and
Ms Dilma’s re-election, Brazil found itself wrestling
with a growing political crisis as the year unfolded,
compounded by sharply declining GDP growth,
increasing ination, growing unemployment,
slow progress on much needed economic reformsand a Petrobras corruption crackdown (the so-called
Car Wash scandal). Investors continue to look for
political certainty.
Activity in Argentina also slowed ahead of elections
there, although with the new Macri government –
which is clearly determined to turn round economic
performance – in place we expect to see activity
pick up now. Peru too has elections in 2016, and activity
has been quieter while investors anticipate the outcome.
Add to all this a number of external factors – not least the
downturn in commodity prices, reduced demand from
China for natural resources and the effect of the rise
in U.S. interest rates – and it’s not hard to see whyinvestors have been increasingly nervous about
buying assets in the region.
Nevertheless we’ve seen some signicant transactions.
Some of these have involved local players buying out
foreign investors, with the most signicant deal beingthe USD5.2bn acquisition of HSBC’s Brazilian banking
operations by Banco Bradesco. There has also been
a good spread of domestic deals, including the
USD710m sale by Camargo Correa of Alpargatas,
the public company that includes Havaianas, the iconic
Brazilian shoemaker famous for its fashion ip-ops,
among its interest. The buyer is J&F, the Brazilian
conglomerate that also controls JBS, the world’s
biggest beef producer.
Investors continue tolook for political certainty.
Despite devaluation of the real and lower asset prices,
Brazil is still not seeing the expected upsurge in inbound
investment, although we did see Coty buy the Brazilian
cosmetic division of Hypermarcas for USD1bn and
China’s HNA invest USD450m in a 23.7% stake in
the airline Azul. The tobacco giant, BAT, also spent
USD2.45bn to buy out the shares it did not already
own in Souza Cruz to carry out its plans to delist the
company and take it private.
Mexico – beneting from faster progress on economic
reforms, notably in the power and energy sector,
and its close ties with the U.S. economy – has been
more successful in attracting investment across a
Economic and political issues
to dampen investor conspiredconfdence in the region.”
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number of sectors, including oil and gas, telecoms
and manufacturing. U.S. investment is, for obvious
reasons, in the lead here, but we are beginning to
see growing interest from Western Europe,
especially Spain and Portugal.
That’s true too in Peru, Colombia and Chile, if on a
smaller scale. While these countries are no longer
beneting from the rapid growth in GDP of recent
years, forecast economic growth remains resilient
and in a range of 2% to 3%. With that growth
founded on a pretty stable base, it should bode
well for increased activity in the year ahead.
While interest from Chinese and other Asian investorsin doing commodity deals in the region is likely to be
much lower while commodity prices remain at a global
low, we do expect to see more transactions from
this source in other sectors, notably from Chinese,
Japanese and South Korean companies.
Chinese and South Korean investors have been seeking
out opportunities in the region for some time, but so far
we have not seen interest translate into many completed
deals. That could well change in the months ahead.
ASIA PACIFIC
(INCLUDINGGREATER CHINA)
Growth continuesdespite challenges
The values of transactions in the region may not be quite
of the magnitude of some of the massive deals seen in
other markets, notably the U.S., but signicant big-ticket
deals continue to be a theme here too and transaction
volumes have continued to rise in 2015, a trend we
expect to continue next year.
Across the region Japanese, Chinese and other Asian
investors continue to dominate the deal landscape.
With Japan’s economy once more teetering on the edge
of recession, Japanese companies and trading houses
are continuing to look for opportunities in more vibrant
economies, both within the region and further aeld,
and are a visible force in cross-border activity.
Increasing amounts of Chinese capital are being deployed
outside China’s borders, but there is a perceptible shift in
the balance of that investment. While the big state-owned
enterprises (SOE) continue to be distracted by and
preoccupied with the government’s ongoing anti-corruption
crackdown, this is hampering decision-making.
By contrast, private Chinese investors are proving
increasingly eet of foot and acquiring even if the targets
they are focusing on are smaller in terms of value.
That’s an important change at a time when there is more
money in the global economy generally and competition
for assets across the world is growing. It would not be
surprising to see these private companies continuing
to play an increasingly active role in the ongoing wave
of outbound investment from China.
As the Chinese economy continues to rebalance,
one signicant driver will continue to be Chinese
companies seeking out brands and technologies that can
be developed afresh and exploited at home. The planned
sale of Osram, the lighting division spun off by Siemens
two years ago, is said to have attracted several potential
bidders, the majority of which are reputed to be Chinese.
In a number of sectors, the effort to build scale for Chinese
manufacturers is now being superseded by the challenge
to modernise and increase productivity and innovation
to address over-capacity and high costs in China.
China remains a challenging market for inbound
investors, and all the more so since the government has
strengthened its antitrust regime, taken a much tougher
line on corruption and imposed new controls on foreign
ownership in key sectors such as IT. But the opportunities
in this market make it one that overseas investors
can scarcely ignore and we expect to see continued
investment, with a growing accent on teaming up with
local partners who can help them navigate a complex
and often opaque market.
South East Asia remains relatively quiet in terms of
completed transactions, with key markets such as
Indonesia, Malaysia and even Singapore remaining
fairly inactive. But a number of major transactions are
going ahead as we saw with the recent USD2.3bn
acquisition of power assets in ve countries by China
General Nuclear, bought from the struggling Malaysian
government investment fund, 1MDB. Behind the scenes
too there is growing activity from corporate buyers and
PE funds are once again scouting for deals, particularlyU.S. dollar denominated ones, who see an opportunity
to acquire assets relatively cheaply at a time when
local currencies have declined in value.
Australia continues to experience strong levels of activity.
Newly appointed Prime Minister, Malcolm Turnbull,
continues to impress the Australian business community
in the early stages of his leadership. With the Australian
dollar having weakened considerably since the start of the
year, the climate for foreign investment in Australia remains
very positive, and the outlook for 2016 equally so.
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Japanese companiesand trading houses arecontinuing to look foropportunities in morevibrant economies,both within the regionand further aeld, andare a visible force incross-border activity.
The largest Australian IPO of the year completed
successfully in November, with Link Group joining the
ofcial list of the ASX with a market capitalisation of
approximately AUD2.5bn. The IPO raised approximately
AUD950m and was oversubscribed many times over.
All four bidders in the auction for the privatisation of
the New South Wales electricity assets received foreign
investment approval. A consortium led by Hastings Funds
Management, dominated by Canada’s Caisse de dépôt
et placement du Québec and sovereign wealth funds
from Abu Dhabi and Kuwait, was appointed thesuccessful bidder with a reported bid price of
approximately AUD10.3bn.
Interest from Middle Eastern sovereign wealth funds
and Canadian pension funds is being seen more widely
across the region. While their main investment targets
are infrastructure and real estate, interest is spreading
to a wider number of sectors and we expect to see
further activity from them in 2016. Competition from
these funds is also forcing traditional PE operators to
emulate their investment strategies, taking a longer-term
“asset management” rather than “asset churn”
approach to transactions.
The overall outlook for 2016 looks positive, particularly as
we see further growth in outbound investment from China.
While China’s growth is slowing and last summer’s wild
stock market uctuations continue to have an impact
on sentiment domestically, the amount of money
being generated by the Chinese economy remains
mind-boggling, and increasingly that money is
being deployed overseas with active government
encouragement. That should mean that the growth
in transactions we have witnessed in 2015 will be
sustained next year.
The opportunities in this market make it one
that overseas investors can
ignore and we expect to see
continued investment.”scarcely
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Sector insights, Q4 2015
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Sector insights As the year unfolded, transformational deals spread across all sectors and we evensaw a resurgence in nancial services. There are signs too that PE funds are onceagain on the front foot.
CONSUMER
Consolidation set to continue
2015 has involved consumer groups making bold moves
towards the expansion of their global footprint and product
coverage, completing deals that may have been considered
too risky even only a year or two ago, whether from a
commercial, nancial or antitrust perspective.
This has been seen across multiple market segments
including: food, with the giant USD100bn merger of
Heinz and Kraft; brewing, with the AB InBev/SABMiller
USD120bn, largely debt-funded, move to create a truly
global beer group; non-alcoholic beverages, with the
alliance forged between Coca-Cola’s European bottlers;and pharmacy, as Walgreens/Boots Alliance extended
their venture by bidding USD17.2bn for Rite Aid.
The AB InBev/SABMiller deal – involving more than
USD70bn of debt nancing – is a good example
of the new mood of condence in boardrooms,
where macro-economic conditions are encouraging
executives to complete transformational deals.
The attractiveness of the transaction overrides
any concerns around regulatory scrutiny and,
where possible, such concerns are proactively
addressed – for instance, through the proposed sale
of SABMiller’s majority stake in its North American
MillerCoors joint venture to its partner, Molson Coors. This continues a trend started last year, most notably
in the tobacco industry with the three-way Reynolds/
Lorillard/Imperial Tobacco transaction.
It is not exclusively about expansion and consolidation,
however. The tie-up between the Dutch and Belgian
supermarket groups, Ahold and Delhaize, also
exemplies the movement in grocery retail towards
focused localisation, rather than broad-brush
globalisation, as retailers struggle to balance the
local needs of their customers with the demands
of a global business to ensure purchasing power
and cost management through volume. Similarly,
Tesco’s disposal of its Korean business is principallydriven by the group’s need to mend its nances,
but there is also a strong desire to focus more
on its domestic business.
We expect to see the tideof transformational dealscontinue to rise in 2016.
The USD28bn Ahold/Delhaize deal is, in large part,
about pooling signicant resources to tackle local
competition in an important overseas market,
namely the East Coast of the U.S. (the new group
will have over 2,000 stores in the U.S.), resulting in
a combined business with much greater scale. The hope
is likely to be that greater scale will allow local customer
needs and global business demands to be balanced
successfully. A number of incoming retailers havestruggled to crack the U.S. market, so progress here will
be watched very closely by other players in the sector.
We expect to see the tide of transformational deals
continue to rise in 2016, with a determination to get
deals off the ground that have not been lacking funds
or appetite but might have been dependent on
completion of the larger consolidative deals and the
resulting availability of attractive targets which do not
t within that bigger picture business plan. This has
certainly been the case in emerging markets such
as sub-Saharan Africa and particularly pertinent
global world.
If macro-economic tailwinds strengthen, conditions mayalso be ripe for an increase in the volume of deals.
We could well see the coming of age of a number of
consumer businesses that launched in the aftermath of
the nancial crisis and are now growing rapidly. As they
look to build on or benet from that growth, we could
see a number attempting to raise new nance and partial
exit through IPOs or sales to strategic or private equity
purchasers. That’s certainly a growing trend already in
the FinTech sector, not least with the rise of peer-to-peer
lending, but we expect it to manifest itself more widely,
particularly in online retailing and related payment
systems and the consumer world as a whole will
feel the ramications.
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ENERGY ANDINFRASTRUCTURE
Uncertainty returns
After a long period of slower activity, 2015 saw the
return of strategic mega-deals to the oil and gas sector,
as major players looked for ways to consolidate their
market positions and take advantage of a downturnin oil prices.
Shell’s proposed GBP47bn strategic takeover of BG
and ENOC’s USD6bn acquisition of Dragon Oil are
both cases in point. The oileld services sector has also
seen a spike in activity during the year, notably with
Halliburton’s proposed USD35bn merger with Baker
Hughes and Schlumberger’s USD12.7bn takeover of
the oil toolmaker Cameron.
In the second half of the year investors have, however,
become noticeably more cautious. The summer
gyrations in Chinese stock prices, the continuing fall in
commodity prices and the now generally accepted view
that oil prices are unlikely to recover for some time, haveall fed this sense of unease.
Notwithstanding this scenario, the market is expecting
the majors to seek to dispose of assets with signicant
capex requirements. This may provide an opportunity for
those investors that are able to take a longer-term view
on the oil price, such as the NOCs, to acquire assets
that, in normal markets, would not be available to them.
The impact of lower oil prices has also been felt among
the smaller players in the sector, with companies either
unable to continue funding developments on their own
account or to attract alternative bank nancing to see
projects through. Similarly, in the oil services sector, the
reduction in capex budgets and focus on cost reductions
within E&P companies is beginning to have an impact on
a number of the service sector participants who are now
having to look at restructuring options.
To date, this has not led to the expected pick-up in
transaction activity. It seems that investors looking to
snap up either individual assets or whole businesses
are holding re while the market remains so volatile
and the outlook on the oil price is so hard to predict.
Given current concerns over the levels of commercial
oil stocks and the possible risk of another signicant drop
in oil prices, investors may well sit on the sidelines far
longer than had originally been predicted.
2015 saw the return ofstrategic mega-deals tothe oil and gas sector.
M&A activity in Russia continues to be curtailed by EU
and U.S. sanctions imposed in the wake of the Ukraine
situation, a factor that has seen Russian companies lookfor alternative sources of investment, notably from China
and India. Some transactions are still going ahead in
Europe, however, as we saw with Rosneft’s decision to
extend its investments in the German rening sector in
addition to its existing joint venture with BP.
By contrast, the U.S. continues to be a powerful engine
for new deals, on the back of the shale boom. We are
seeing increased domestic activity in the rening and
chemicals sector as producers redirect investment from
emerging markets back onshore to take advantage of
cheap and plentiful shale gas.
That trend will last only so long. If the market becomes
saturated, we could well see investment owingoutbound again into European and Asian markets.
This may provide an opportunity for thoseinvestors that are able to take a
view on the oil price.”
longer-term
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Other shale-related infrastructure deals – notably pipelines
– are to the fore too in the U.S., as we saw with the
USD33bn acquisition of Williams by rival pipeline giant
Energy Transfer Equity. And we expect to see other
opportunities arise here, which should attract more
mainstream infrastructure investors.
That’s a trend in some other markets too. The UK’s
National Grid has, for instance, announced plans to sell
a majority stake in its gas transportation business in
2016. The deal is likely to attract interest from sovereign
wealth funds, pension funds and dedicated infrastructure
investors and is consistent with continued trading of
electricity and gas transmission and distribution assets
across Europe.
Such opportunities are becoming highly competitive,
as the infrastructure market more widely continues to
struggle with a now familiar problem – an excess of
capital chasing a scarcity of assets, compounded by
the hunt for predictable and risk-free yield.
FINANCIAL SERVICES
Fortunes turn
2015 saw a sudden and somewhat surprising returnof transactions activity in the nancial services sector
– the rst time we have seen a spike in FS deals since
the nancial crisis.
Much of that activity has been driven by signicant,
big-ticket consolidation deals in the insurance sector
and by a good level of activity in asset management.
But banking M&A continues to be driven mostly by
the regulatory agenda set since the crisis, with banks
continuing to slim down portfolios, dispose of
risk-weighted assets, and focus on their core
operations to meet tough new capital requirements.
Banks have several ways to complete this work and not
all of it involves M&A. Citi, for example, has disposed ofpoorly performing or risky assets but it has reduced its
exposure in some markets, such as Russia, in other
ways, reducing headcount or closing down operations,
for example.
We did see some signicant disposals during the year,
not least HSBC’s USD5.2bn sale of its Brazilian banking
operations to Banco Bradesco. Its ongoing efforts to nd
a buyer for its Turkish business, and the Portuguese
government’s struggle to nd a buyer for Novo Banco,
both clearly illustrate the ongoing difculties of selling
major European banking assets.
By contrast, the U.S. has seen a signicant spike
in banking transactions among mid-tier banks.Indeed, there were 29 such transactions in the
year’s busiest quarter, Q3, with all but two being
domestic rather than cross-border deals.
2015 saw a suddenand somewhat surprisingreturn of transactionsactivity in the nancialservices sector – the rsttime we have seen a
spike in FS deals sincethe nancial crisis.
One noticeable trend in banking is the continuing
refocusing of bank operations, particularly in global
investment banking where many of the big European
players are retrenching, leaving the big U.S. banks
– such as Citi, JP Morgan, Bank of America,
Goldmans and Morgan Stanley – in an increasingly
dominant position in the global market.
Separately, banks continue to sell whole loan portfolios,
really signicant multibillion deals that are increasingly
attracting the interest of PE funds.
UKAR, the UK state-owned holding company,
sold shares and assets in Northern Rock and related
disposals from UKAR are expected to continue in the
next few years. GE also disposed of several portfolios
of UK loan assets to various funds. Elsewhere in Europe
we are seeing continued activity in Spain and from the
middle of next year further loan portfolio sales are
expected to begin in Greece.
This is also part of the continued effort to sort out legacy
issues from the nancial crisis, as banks clear their books
of unwanted and/or poorly performing assets, such as
consumer loans, credit card portfolios and mortgages.
Banks are unlikely to buy these assets from eachother as they would have to hold capital against them
– PE funds have no such capital requirements to meet.
The dominant trend in the insurance market is for a
two-way split, with large general insurers on one side,
and niche players on the other. That inevitably means the
mid-sized operators are becoming increasingly squeezed
and we expect them to remain takeover targets for their
larger rivals, with plenty more scope for consolidation of
this kind.
Japanese insurers and trading houses have been a
dominant force in this activity, said to account for
around a third of all activity in a year that has been busier
than any other period since 2006. Mitsui Sumitomo’sGBP3.5bn acquisition of Lloyd’s insurer, Amlin,
was a standout deal in this regard and one that could
spark further bids for independent Lloyd’s insurers.
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Meanwhile, reform of the U.S. healthcare system
following the so-called Obamacare Act is driving
consolidation on an even grander scale, with several
mega-mergers during the year, including the giant
USD48.4bn Anthem/Cigna merger.
We see considerable scope for further consolidation in
insurance and expect asset management deals to
continue also. While banking transactions and more
general restructuring will continue to be driven by the
new, post-crisis regulatory environment for some years
to come, we expect pure banking M&A – more strategic
and adventurous in nature – to continue to return the
further we get from the height of the nancial crisis.
LIFE SCIENCES
Time to draw breath?
The extraordinary M&A boom in the life sciences sector
continued right to the end of 2015, with Pzer choosing
November to launch its giant USD160bn bid for Allergan
in what promises to be not only the largest ever deal in
pharmaceuticals, but also the biggest M&A deal of 2015
and the largest tax inversion on record.
Even before the move was announced, the life sciencessector had already established itself as the powerhouse
of the M&A market and the main foundation stone of
now record levels of transactions in 2015. With the
Pzer/Allergan deal taken in, the sector has seen
an astonishing USD630bn worth of deals in the
last 24 months.
Another growing areaof activity in 2015 has
been in the digital healthspace, with pharmacompanies starting tobuy in technology andtalent to help themdeliver all the promisesof digital medicine.
The generics market has been at the centre of thisactivity – and Allergan is a prime example of merger
fever with the current entity being the product of a string
of mergers, starting with the Actavis takeover of Watson.
Teva, on the other hand, bought out Allergan’s generics
business earlier this year in a USD40.5bn deal.
Ahead of that, Teva had abandoned its pursuit of
Mylan, which itself was tilting for Perrigo – a battle
nally lost in the autumn when its offer was rejected
by Perrigo shareholders.
The bigger question fornext year is whether the
life sciences M&A boomwill continue.
There are two forces at play in M&A in the generics
market – “generic plus generic” mergers are all about
economies of scale, while innovator and generic
mergers may achieve different results, likely linked
to diversication of portfolio and risk.
The Pzer/Allergan deal comes only nine months after
Pzer acquired biosimilar maker, Hospira, for USD16bn
and a little over a year after it was forced to abandon its
much bigger bid for the UK’s AstraZeneca in the face of
objections from the target company, shareholders and
UK politicians.
The latest deal is controversially driven by the tax
efciencies Pzer will realise by moving its HQ out of
the U.S. and adopting Allergan’s Dublin domicile,
reducing its effective tax rate from 35% to 18%.
It comes despite efforts by the U.S. authorities to close
so-called tax inversion loopholes and has only been
possible because Pzer has found a merger equal with
the right proportion of U.S. and overseas shareholders to
meet current restrictions. With political pressure building
on companies seeking to redomicile out of the U.S., it is
likely further action will be taken on tax inversion deals.
But the deal has industrial logic too, providing Pzer
with a cushion from the peaks and troughs of creating
innovative drugs with all the inherent risks of R&D
and perils of the patent cliff. Now the move raises the
question of whether Pzer, having bulked up its generics,
innovation and consumer interests is moving towards
the widely expected eventual break-up of the company
into three self-standing businesses.
The deal ts a pattern of activity in the market in recent
years with big pharma companies consolidating to cut
costs, to protect themselves from the patent cliff and nd
new ways to create shareholder value. But not all players
are following the same path. GSK and Novartis haveboth cast doubt on whether mega-mergers really create
value, preferring instead to pursue targeted so-called
“precision” M&A.
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Meanwhile, failed deals in the market (for example
Mylan and Perrigo) show just how important it is to
demonstrate real shareholder value from proposed
transactions – shareholders are not always as tractable
as boards might hope.
Another growing area of activity in 2015 has been in thedigital health space, with pharma companies starting to
buy in technology and talent to help them deliver all the
promises of digital medicine. That has led to a spate of
cross-sector transactions, and we expect this to be a
continuing trend in 2016.
The bigger question for next year is whether the life
sciences M&A boom will continue. Some commentators
condently predict it will. But it would not be surprising to
see the industry take a pause for breath, not least while
recent deals are absorbed and bedded in, as pipelines
are restocked and, perhaps, mothballed projects are
brought back on stream in important areas like
antibiotic development.
Overall volumes of deals could remain healthy,
but it would not be surprising to see values decline
signicantly from their current phenomenal heights.
MINING
Outlook remains gloomy
With commodity prices continuing to fall, demand
– not least from China – also on a downward trend and
with a global market increasingly dogged by oversupply,
the mining sector has ended an already very gloomy year
by deteriorating still further.
The recent dramatic fall in share prices for the major
resources groups illustrates that position clearly.
Glencore has suffered more than most, its shares losing
a third of their value in September amid fears that the
slump in commodity prices may have further to run
and will prove to be prolonged. But its rivals have
fared only marginally better, with the market valuesof Anglo American, BHP Billiton and Rio Tinto also
all suffering steep declines.
The industry is feeling the effects of a glut of new
capacity brought on stream in the boom years when
commodity prices were rocketing ahead and when
the global market was being bolstered by seemingly
unending demand, notably from a fast expanding
Chinese economy.
All that’s changed now. Demand from China has fallen
steeply as growth slows. Copper and platinum are at
a 10 year low, iron ore continues to fall, and other bulk
commodities are following a similar track. Although some
capacity has been taken out of the market, the supply
and demand situation remains badly out of balance and
will probably require further cuts.
What little M&A activity we have seen has involved
moves to raise cash to shore up balance sheets –
Glencore, for instance, has made a number of disposals.
Elsewhere BHP Billiton has taken action to sort out its
sprawling commodities interests, spinning off certain
interests from South32 to add greater focus.
The question for players at all levels of the sector,
however, is how long they can limp on before we see
a spate of distressed assets coming on to the market.
Banks are giving the industry some breathing space. They seem loath to withdraw their backing from projects,
clearly recognising that, with the market in its present
parlous state, it’s better to hang on in the hope that
Mining-focused private equity funds and new
backed by funds, remain prepared to do deals.”
corporates
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PRIVATE EQUITY
Swing year
While levels of activity by PE funds are still not at the
level seen in the frenzied years before the nancial crisis,
2015 was undoubtedly a swing year for PE investment,
with funds once again going condently on the front foot
to complete new acquisitions having focused largely on
exits in recent years.
Despite huge amounts of repower to deploy and
ready access to debt nancing, funds remained in apretty defensive mood in the wake of the crisis and
right up to this year. They were reluctant to compete
with well-nanced strategic buyers, often prepared
to pay a premium to secure cherished synergies.
Auctions remained something of a no-go area for
funds, as a result.
That began to change in early 2015 and there has been
a progressive uptick in primary buyout activity as the year
has progressed, which not only indicates growing
condence but also mounting pressure to deploy the
record levels of dry powder that funds have accumulated
in the relatively quiet years.
Some sectors have been particularly buoyant in recentmonths, not least retail and consumer where we’ve
seen a raft of deals including R&R Ice Cream and PAI
Partners’ proposed joint venture with Nestlé to combine
their global ice cream businesses, and Exponent’s
proposed GBP400m acquisition of Photobox Group,
the digital personalised gifts and products business.
Signicant disposals continue too in this sector, not least
the GBP550m sale by Exponent and Intermediate
Capital Group of Quorn Foods, the international maker
of meat alternatives, to Monde Nissin of the Philippines.
And we’ve seen a good spread of secondary deals
between funds, not least two deals by PAI Partners
– the acquisition of A/S Adventure from Lion Capitaland the specialist outdoor sports retailer, Snow and
Rock Group, from LGV Capital.
Business services also remains a busy area for
transactions, including the acquisition by OMERS
Capital and AIMCo of Environmental Resources
Management, the international sustainability
consultancy, from Charterhouse.
This shift in activity towards a better spread of both
acquisitions and exits is mirrored in many north European
markets, with activity in France picking up particularly at
the top end of the mid-market, and with Germany and
the Benelux countries busy too. Italy and Spain are also
getting more active, although activity is focused onsmaller deals, but Scandinavia remains relatively quiet.
commodity prices will recover. The deals that are
being done tend to include structures where the
current owners may be able to protect themselves
against the risk of selling at the bottom of the cycle.
We have seen a number of distressed deals in recent
months but they still remain relatively few and far
between. Those that have occurred are focused at
the junior end (where companies lack the resources
to wait for an uptick in prices).
Other players looking to raise nance are managing to
make some headway. After months of seeing its share
price plummet, Lonmin, for instance, successfully got its
emergency USD400m rights issue away in November.
The commodities slump has hit Africa particularly hard,
and in some cases that has been compounded by
local factors. South Africa continues to be an uncertain
market, thanks to government intervention, continued
labour problems and frequent power disruptions, all of
which have hit the sector hard.
In the Asia Pacic region the sentiment is in line with
the global position. Mining companies have remained
focused on reducing both capital and operating costs,
conserving cash and resisting doing deals.
Mining companies haveremained focused onreducing both capitaland operating costs,conserving cash andresisting doing deals.
Mining-focused private equity funds and new corporates
backed by funds, remain prepared to do deals, but atvalues based on current commodity prices. To date there
have only been a limited number of deals where the gap
between the mining companies’ and the funds’ view of
value has been bridged. However, there are signs of a
slight increase in activity, such as the recently announced
acquisition by EMR Capital from Hong Kong listed
G-Resources of a 95% stake in the Martabe gold
and silver mine in Indonesia for USD1.05bn.
Deals are also being structured with deferred or
contingent payments, ‘clawback’ rights and similar
features to provide the vendor with some potential for
future returns as a sweetener to get the deal done at
the current values.Overall, however, there is little sign of a let-up in the
months ahead and we expect conditions in the
industry to remain depressed well into 2016.
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The big funds areonce again partaking
in auctions, and it’s nolonger uncommon tosee potential buyersseeing the wholeprocess through.
We expect this to continue into 2016. After a year
of heightened activity, it’s hard to see any particular
economic issue that could halt it in its tracks,
although geopolitical events may cause disruption
and the summer’s volatility in Chinese stock pricesdid cause a brief, delayed slowdown in PE activity
in the Autumn.
The big funds are once again partaking in auctions,
and it’s no longer uncommon to see potential buyers
seeing the whole process through. Even if ultimately
unsuccessful, it shows that funds are once again
prepared to make that investment to explore
new opportunities.
As condence grows, deals are likely to become
more ambitious and, probably, more complex.
It’s becoming increasingly common, for instance,
to see a PE Fund joining forces with a strategic buyer
to pursue a buyout, with the fund able to bring more
innovative nancing to support the strategic buyer in
securing much prized synergies.
TELECOMS, MEDIA AND TECHNOLOGY
The regulatory challenge
No other sector, apart from life sciences, has driven
the M&A boom of the last 18 months like TMT, and
continued activity is on the cards as both regulation
and innovation drive players to re-examine their
business models and look for new avenues to growth.
With merger authorities having cleared a number
of xed-to-mobile convergence deals relatively
swiftly compared with mobile-to-mobile consolidation
deals, M&A dealmakers may focus efforts on
convergence deals.
Underlying the continued M&A activity in the telecoms
sector, and indeed M&A activity in the broader media
market, is a shift to platform-agnostic strategies basedon a “quadplay” offering. These models increase
customer “stickiness” for the operator, but also
respond to consumer demand for anytime/anywhere
access to content.
And there’s a knock-on effect – the value of content
providers is rising as operators seek access to the kind
of valuable content that will allow them to attract and
hang on to customers. BT’s investment in sports rights
and Netix’s investment in programming are part of this
trend, and we are likely to see more content providers
consolidating and being bought by operators.
Further, more profound regulatory change is on the way in
Europe thanks to the Commission’s Digital Single Marketinitiative. Although this may not have an impact on the
M&A market in the coming year, it promises to do so in the
Some sectors have been particularly
in recent months, not least retail and consumer.”
buoyant
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Nokia’s announced China joint venture with Huaxin and
Chinese clearance of its merger with Alcatel-Lucent was
another, and Western Digital’s invitation to take on a
Chinese investor was yet another. On the internet space,the Chinese internet behemoths are expected to
continue to diversify their portfolio of businesses
even as they continue to expand internationally.
In the year ahead, we expect to see a growing number
of outbound content – or technology-based deals by
Chinese companies eager to exploit opportunities
both internationally and domestically.
That’s a continuation of another signicant trend
in 2015 where China’s growing inuence in the
technology M&A market became increasingly evident,
through outbound acquisitions, as an increasingly
powerful presence in antitrust regulation and as a
direct result of government policy to ensure Chinese
companies maintain control of strategic IT joint
ventures with inbound investors, as the HP/Tsinghua
deal demonstrated this year.
longer term by potentially redening such issues as access
to copyrighted content across borders which could disrupt
the way rights are sold on a national basis. The power of
big individual platforms, such as Google and Amazon, toconcentrate the delivery of services could also be challenged.
Another driver of activity in the tech sector is the
growing trend towards cross-sector acquisitions,
with, for instance, nancial institutions and pharma
companies buying tech companies to enter the FinTech
and digital health sectors. We are already seeing activity
in these areas as established players look at acquiring,
collaborating with or investing in innovative digital
companies to inject technology and skills into
their businesses. FinTech has already seen plenty
of activity in 2015, and 2016 looks to be even
busier – particularly in the booming payments
and peer-to-peer lending segments.
China’s impact on the technology landscape continues
to grow including with increased complexity and nuance.
China’s push for increased cybersecurity has meant that
its imposition of indigenous, cyber-reliable requirements
has created an additional complex element that is coupled
with Beijing’s increased role on global merger control
clearance as well as the very nascent beginnings of a
Chinese-like CFIUS regime. Cross-border joint venture
arrangements of different shapes and sizes are expected
to grow. The HP/Tsinghua deal was one form of market
leading response, Microsoft and IBM’s willingness to share
some form of source code was a recent development,
China’s push for increased cybersecurity hasmeant that its imposition of
cyber-reliable requirements hascreated an additional complex element.”indigenous
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A global snapshot
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A global snapshotTop 20 global outbound acquirers and inbound target markets
Number of
outbound acquisitions
Number of inbound
acquisitions
Note: these gures represent the total
number of deals announced between
1 January 2015 and 11 December 2015.
KEY
U.S.
Brazil
Canada
France
Switzerland
UK
Netherlands
Spain
Ireland (Republic)
Belgium
1231 816
516 549
326 200
279 248
166 75
137
152
105 74
73 87
17068
175
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Norway
Germany
Japan
India
Italy
Top 20 Global Outbound Acquirers, FY 2015
Rank Country Volume
of deals
Value of
deals USDm
1 U.S. 1,231 416,057
2 UK 516 129,484
3 France 326 44,254
4 China 312 84,231
5 Japan 296 84,141
6 Germany 285 23,453
7 Canada 279 146,177
8 Hong Kong 245 53,197
9 Switzerland 166 42,036
10 Sweden 161 9,775
11 Netherlands 152 151,655
12 Singapore 126 11,008
13 Australia 115 21,333
14 Ireland (Republic) 105 50,373
15 Italy 89 12,719
16 Belgium 73 128,198
17 Norway 69 4,155
18 Spain 68 19,852
19 India 63 4,869
20 Denmark 52 5,457
Top 20 Global Inbound Target Markets, FY 2015
Rank Country Volume
of deals
Value of
deals USDm
1 U.S. 816 409,659
2 UK 549 357,507
3 Germany 339 44,105
4 China 266 37,123
5 Canada 248 19,935
6 India 232 21,862
7 France 200 52,401
8 Italy 190 42,417
9 Australia 183 46,015
10 Netherlands 175 28,902
11 Spain 170 27,365
12 Brazil 137 16,411
13 Sweden 116 20,122
14 Denmark 108 8,023
15 Hong Kong 107 31,334
16 Belgium 87 17,577
17 Norway 82 7,860
18 Switzerland 75 12,812
19 Ireland (Republic) 74 235,862
20 Singapore 71 14,077
Sweden
China
Hong Kong
Singapore
Australia
Denmark
266312 296
285 339
107245
161116
126 71
115 183
89 190
69 82
63 232
52 108
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0.0000003.2857146.5714299.85714313.14285716.42857119.71428623.00000026.28571429.57142932.85714336.14285739.42857142.71428646.00000049.28571452.57142955.85714359.14285762.42857165.71428669.00000072.28571475.57142978.85714382.14285785.42857188.71428692.00000095.28571498.571429101.857143105.142857108.428571111.714286115.000000118.285714121.571429124.857143128.142857131.428571134.714286138.000000141.285714144.571429147.857143151.142857154.428571157.714286161.000000164.285714167.571429170.857143174.142857177.428571180.714286184.000000187.285714190.571429193.857143197.142857200.428571203.714286207.000000210.285714213.571429216.857143220.142857223.428571226.714286230.000000
Spain
Italy
Netherlands
Brazil
Australia
France
Germany
India
Canada
United Kingdom
I re l
0.0000003.2857146.5714299.85714313.14285716.42857119.71428623.00000026.28571429.57142932.85714336.14285739.42857142.71428646.00000049.28571452.57142955.85714359.14285762.42857165.71428669.00000072.28571475.57142978.85714382.14285785.42857188.71428692.00000095.28571498.571429101.857143105.142857108.428571111.714286115.000000118.285714121.571429124.857143128.142857131.428571134.714286138.000000141.285714144.571429147.857143151.142857154.428571157.714286161.000000164.285714167.571429170.857143174.142857177.428571180.714286184.000000187.285714190.571429193.857143197.142857200.428571203.714286207.000000210.285714213.571429216.857143220.142857223.428571226.714286230.000000
Switzerland
Canada
Brazil
Netherlands
Spain
Belgium
Italy
Germany
United Kingdom
USA
Un
00000.2857146.5714299.85714313.14285716.42857119.71428623.00000026.28571429.57142932.85714336.14285739.42857142.71428646.00000049.28571452.57142955.85714359.14285762.42857165.71428669.00000072.28571475.57142978.85714382.14285785.42857188.71428692.00000095.28571498.571429101.857143105.142857108.428571111.714286115.000000118.285714121.571429124.857143128.142857131.428571134.714286138.000000141.285714144.571429147.857143151.142857154.428571157.714286161.000000164.285714167.571429170.857143174.142857177.428571180.714286184.000000187.285714190.571429193.857143197.142857200.428571203.714286207.000000210.285714213.571429216.857143220.142857223.428571226.714286230.00000
00000.2857146.5714299.85714313.14285716.42857119.71428623.00000026.28571429.57142932.85714336.14285739.42857142.71428646.00000049.28571452.57142955.85714359.14285762.42857165.71428669.00000072.28571475.57142978.85714382.14285785.42857188.71428692.00000095.28571498.571429101.857143105.142857108.428571111.714286115.000000118.285714121.571429124.857143128.142857131.428571134.714286138.000000141.285714144.571429147.857143151.142857154.428571157.714286161.000000164.285714167.571429170.857143174.142857177.428571180.714286184.000000187.285714190.571429193.857143197.142857200.428571203.714286207.000000210.285714213.571429216.857143220.142857223.428571226.714286230.000000
229 130
161 3790 2888 25
57 2451 23
47 20
43 20
43 19
37 19
A global snapshotTop target markets for the world’s largest acquiring countries
U.S. – the world’s largest acquiring country UK
UK 60,755
Canada 13,087
India 12,482
Germany 18,275
France 12,952
Australia 9,142
Brazil 5,140
Netherlands 17,061
Italy 10,230
Spain 11,733
Value of deals (USDm)
U.S. 42,789
Germany 7,756
Netherlands 3,752
France 6,043
Australia 1,108
Ireland (Rep) 36,420
India 1,670
Italy 938
Spain 2,396
Canada 531
Value of deals (USDm)
ChinaFrance
U.S. 23,677UK 2,636
Germany 587
Italy 2,072
Belgium 2,405
Spain 2,110Netherlands 1,221
Brazil 126
Canada 22
Switzerland 6
Value of deals (USDm)
5235
352422
22
1297
7
Hong Kong 13,204U.S. 17,414
Australia 4,722
South Korea 1,385
Singapore 2,539
UK 1,906Germany 359
Canada 498
India 1,384
Taiwan 1,003
Value of deals (USDm)
6457
2320
161210
98
8
*These gures represent the total number of deals announced
between 1 January 2015 and 11 December 2015.
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