According to Allen & Overy’s latest M&A Index, all the ingredients for mergers and acquisitions (M&A) activity to prosper are now in place: the availability of cheap funding, cash-rich corporates and well-performing equity markets.
The first three months of 2014 showed signs of a rebound in the global M&A markets, with signs of improved confidence among chief executives. There were promising signals in the following areas:
- The US market continued to show resilience, with valuations at the top of historical ranges and an active PE market
- Shareholder activism has sparked renewed M&A activity in the US and activist investors are expected to target more firms in the US and even in Europe, following positive shareholder returns
- Telecommunications, media and technology (TMT) is the dominant sector, with players such as Facebook, Twitter and Google being cash-rich and able to pay for acquisitions
The US continues to be the liveliest of the M&A markets and ranks as the most attractive destination for foreign buyers and as the most aggressive acquirer into other countries. According to Allen & Overy, valuations are at the top of historical ranges, US private equity markets are extremely active and the technology sector has boasted mega deals such as Facebook’s $19bn (£11bn) acquisition of WhatsApp, Comcast’s $45bn acquisition of Time Warner Cable and Liberty Global’s successful $10bn acquisition of Dutch cable operator Ziggo.
Andrew Ballheimer, co-head of the global corporate practice at Allen & Overy, said: ‘As the deal pipelines in key markets continue to strengthen, we are finally seeing the seeds of future growth in the M&A markets. The US has been the main ground for M&A action; however, Europe and the Asia-Pacific region are gradually catching up. We are optimistic that 2014 should become increasingly busy for M&A activity.’
The M&A Index provides market insight and commentary by Allen & Overy partners, backed up by independently commissioned quarterly research on global M&A deal types and analysis of top global outgoing buyers and target markets.
Some observations from the latest report include:
- Importance of the management of complex employment issues that arise before and during a post-merger integration
- Asian markets divided into two halves: North Asia, most notably Greater China, showed much greater signs of activity than the ASEAN economies
- For PE funds, the focus has been on selling existing businesses rather than on acquiring new ones. TMT remains one of the main sectors attracting strong PE interest, particularly in Europe where consolidation has continued to be a major theme