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Industry trends

A record year for deal making

Matthew Toole  Director, Deals Intelligence Thomson Reuters

Matthew Toole  Director, Deals Intelligence Thomson Reuters

The most prolific 12 months for worldwide deal making in history, 2015 will be remembered by record levels of M&A activity in the United States and Asia Pacific and rapidly consolidating industries ranging from Healthcare, Energy & Power to Technology and Industrials. The explosion of the mega deal powered the all-time highs, changing the competitive landscape for many global industries and leaving boardrooms and deal makers to look back at the drivers of the past two years and look ahead to a new year.


2015 M&A Trends, a record year for deal making

Infographic: 2015 M&A Trends


Transformative mega deals

Worldwide deal making totaled $4.7 trillion during 2015, an increase of 42% compared to 2014 and the strongest annual period for merger activity since records began in 1980. For the first time ever, three consecutive quarters surpassed $1 trillion dollar quarters for announced M&A in 2015, powered by the top three all-time months for global M&A activity – November 2015 ($611.2 billion), October 2015 ($548.5 billion) and June 2015 ($530.1 billion).

The proliferation of the “Mega Deal” was the hallmark of the year in deal making, as 141 deals over $5 billion accounted for 51% of overall M&A value, the highest percentage and number of mega deals on record. Royal Dutch Shell’s $81 billion bid for the United Kingdom’s BG Group in April kicked off the string of transformative consolidations across multiple sectors. In fact, four deals announced this year have earned a spot on the all-time top 20 list, with Charter Communications making a second attempt to purchase Time Warner Cable for $78.4 billion in March, Anheuser-Busch InBev’s bid for SABMiller for $120.8 billion in October and Pfizer’s $191.6 billion offer for Allergan PLC, which ranks as the second largest announced deal over the past 30 years.

Every major region saw year-over-year M&A growth during 2015, with the United States and Asia Pacific accounting for a combined 74% total deal-making activity and surpassing all full-year records for M&A activity in the regions. European M&A totaled $907.5 billion, an 8% increase compared to a year ago and the strongest period for M&A in Europe since 2008. Japan and Africa/Middle East accounted for nearly 4% of worldwide deals in 2015, on par with a year ago.

Triple-digit percentage annual growth spanning across Pharmaceuticals and Healthcare providers, Computers and Semiconductors, Transportation & Infrastructure and Food and Beverage, pushed all 12 major industry sectors into positive territory during 2015. Healthcare deal making increased 71% compared to a year ago and accounted for 14% of total worldwide merger activity during the year, while Energy and Power and Technology each accounted for 13% of total deals. Annual records were broken for five sectors this year: Healthcare, Technology, Consumer Products, Industrials and Retail M&A.

Deal cycles: Will history repeat?

A look back across historical deal cycles illustrates a span of seven years in between deal-making peaks. At the turn of the century, two of the all-time largest quarters for deal making marked the peak of the “dot-com” era, followed by a U.S. presidential election, broad stock market declines and an eight-month recession. During the height of the “buyout” era in 2007, three of the largest all-time quarters for global M&A took place, followed by another election, broad stock market declines and a global financial crisis. Over the past two years, five of the biggest all-time M&A quarters have been announced across a diverse set of industry sectors and regions in the midst of a European debt crisis, increased volatility across stock markets and commodities, slowing growth in China, central bank policy shifts and another U.S. presidential election.

As a percentage of GDP, United States M&A accounted for 13% of U.S. GDP during 2015, surpassing 2007 levels, but far below levels seen in 2000. Deal making as a percentage of M&A worldwide and in Europe is well below historical levels, indicating there may be still consolidation to be done outside of the United States in the year ahead.

Shareholders react

At the beginning of 2014, the start of this newest  M&A cycle, 80% of U.S. deals over $1 billion saw a positive reaction from shareholders during the first quarter. Companies were engaging in M&A to grow revenues and expand or divest business lines. Along the way, acquirers were finding synergies and unlocking value, and they were being rewarded in the public markets. Although the level of enthusiasm decreased throughout 2014, nearly two-thirds of all deals in the United States that year saw rising stock prices after a deal announcement. Looking at full-year 2015, the first quarter of the year kicked off with nearly 70% of deal announcements resulting in a rising acquirer stock price, but the arrival of some summer volatility and more complex deal structures, pulled the total number of approving shareholders down to 37%, the lowest quarterly percentage since 2011.

A good year to be an M&A banker

For deal makers, a frenetic pace of corporate tie-ups, unsolicited and hostile deals, and competing bids called for one word: advice. M&A advisors around the world saw increased activity, with four firms – perennial deal maker, Goldman Sachs, along with Morgan Stanley, JP Morgan and Bank of America Merrill Lynch – registering more than $1 trillion in advisory credit during the year. Skadden provided legal advice on more than $1 trillion dollars worth of deals during 2015, a first for a global law firm, and more than double the level of activity the firm saw last year when they also ranked as the world’s top M&A law firm.

Fees from mergers and acquisitions, based on deal completions, totaled an estimated $26.0 billion, an 8% increase compared to a year ago. The top tier, bulge bracket firms saw a collective increase in share of M&A fees, rising to 47% from 45% a year ago. Nearly 900 boutique and independent advisory firms cashed in their industry expertise last year, accounting for 31% of overall advisory fees during 2015, an all-time high and illustrating the changed advisory landscape since 2000, when boutique advisory firms accounted for 13% of fees and the top-tier advisors accounted for 63%.


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