M&A levels soaring as firms eye big profit growth
The €2.29bn hostile bid for Dana Petroleum from South Korea's national oil company yesterday was just the latest in a surge of activity taking merger and acquisition (M&A) levels to a nine-month high.
Despite edgy economic data from the US, global deal-making has already topped $197bn (€155bn) so far this month, and is on course to beat the August record of $260bn (€205bn) set in 2006, according to Thomson Reuters. This week's $89.8bn (€70.7bn) total is the highest weekly total since early November.
Recent weeks have seen a frenzy of activity. Korea National Oil Corporation's offer for Dana came just a day after the launch of the biggest deal this year so far: BHP Billiton's hostile $43bn (€33.8bn) attempt on Canada's Potash Corporation. The same day, microchip giant Intel put up $7.7bn (€6bn) for the antivirus software group McAfee.
On Monday another miner, Vedanta Resources, offered $6.6bn (€5.2bn) for Cairn India, while the insurer Aviva rejected a $5bn (€3.9bn) offer from rival RSA.
Last week, French energy group GDF Suez and International Power agreed a reverse takeover worth $22bn (€17.3bn), while yesterday rumours of an approach sent BG Group's shares soaring by nearly 6pc.
In a sign of growing economic confidence, there have been more than 26,000 global M&A deals with a total value of $1.7 trillion either pending or completed so far this year, compared with around 23,400 deals valued at $1.4 trillion in the same period of 2009, according to Dealogic.
Alongside several major international deals -- such as Swiss pharmaceutical group Novartis's $39bn (€30.7bn) approach to US eyecare specialist Alcon, or Indian Bharti Airtel's $11bn (€8.65bn) acquisition of Zain Africa -- British companies are also playing their part.
The sudden rush of deals in the usually slow month of August in part reflects the months of work needed to put together a major takeover.
Furthermore, while both companies and their advisers might take advantage of a slow August in a normally busy year, in the aftermath of the global recession potential deal-makers are keen to go ahead as soon as they can.
"Corporates are feeling stronger and those with very strong balance sheets, who have weathered the storm and done what they needed to do internally, are now looking for opportunities for revenue growth," Carol MacKinnon, a partner in transaction services at Deloitte, said.
"People will have been working on these transactions for several months."
Putative deals are spread across a range of sectors, but oil and gas and mining are particularly well-represented because commodity prices were quick to recover from their precipitous recessionary crash, boosted by demand from developing economies.
With M&A activity picking up, and banks shown to be supportive, the current trajectory is likely to continue.
"Everybody watches each other, so if one deal gets away then you often find others will follow," Howard Wheeldon, at BGC Partners, said.
"There is still uncertainty out there but there is also a move towards allowing risk back into the system." (Bloomberg)