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Volume of M&A deals in first quarter suffers a sharp drop, but value soars

Published Mar 31, 2014


Johannesburg - The first quarter of this year recorded the smallest number of global merger and acquisition (M&A) deals in more than a decade, but the 54 percent increase in deal value suggested that 2014 is a year of bigger transactions.

The Thomson Reuters preliminary M&A report for the first quarter, released on Friday, showed that this year had the strongest annual start for deal making since 2011 as net competing bids rose 35 percent.

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By number of deals, M&A activity decreased 14 percent compared with last year’s levels and was the slowest first-quarter period for deal making since 2003.

Only 710 deals were concluded but deal value totalled $710.3 billion (R7.6 trillion).

While some developed economies enjoyed activity levels last seen before the 2008 global recession, M&A deals in emerging markets fell 17 percent and touched the lowest levels since 2009.

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Deal worth $109.2bn were concluded in emerging markets, accounting for 15 percent of total global M&As, a 2 percentage points reduction from the first quarter of last year.

“These figures make a lot of sense,” said Brad Webber, Standard Bank’s co-head of M&As in South Africa.

“The real issue is about confidence at the end of the day. Companies’ chief executives do not go and do M&A deals unless they are confident about the prospects of that economy.

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“In the emerging markets region, there is a lack of confidence because of declining growth rates.

“When you look at China in 2004/2005, it was growing at 10 percent a year. Now they are lucky if they get 7 percent. In Russia, the whole instability about Crimea and the sanctions imposed on it is unsettling. India is over-regulated and has had a significant decline in growth rates. South Africa has the same sentiments.”

If it was not for China, which accounted for about 42 percent of emerging markets acquirers so far this year, emerging economies whose M&A activity is largely driven by mineral resources would have experienced more subdued growth as M&As in materials sectors declined by 11 percent year on year.

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China remains very specific when it comes to the sectors it looks for. Chinese state-owned companies have a mandate to look for metals and oil and gas deals in Africa and continue to boost M&As on the continent.

Even though their M&A activity has slowed down a bit, Webber pointed out that Chinese firms were still eyeing such deals.

Sectors that enjoyed most M&A activity growth were media and entertainment, consumer products and services, health care, hi-tech, telecommunications and retail.

While the materials sector did not attract as much interest from acquirers, the technology, media and telecommunication sectors maintained the momentum they had enjoyed in previous years. The value of entertainment and media deals grew more than threefold to $157.8bn, accounting for 22 percent and the largest share of all global deals in the quarter.

This was, however, no surprise as the two largest deals in the quarter involved the US’s second-largest cable television company, Time Warner Cable, and totalled $133.2bn.

One of the acquirers, Comcast, is the largest mass media and communications company in the world by revenue and the other, Charter Communications, is the fourth-largest cable operator in the US.

The value of hi-tech deals grew 89 percent year on year and telecommunications grew 67 percent. And the growth has not been fuelled by a spate of once-off deals, but appears to be a recurring trend.

Last year, global technology, media, and telecommunications M&A activity totalled $510.3bn, according to Mergermarket’s global M&A roundup report released in January. This represented a 54.1 percent increase.

In the quarter under review, the US accounted for 51 percent of all M&As and had the strongest year-to-date period for US deal making since 2007. - Business Report

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