In response to the improving macroeconomic conditions, low interest rates and abundance of cash amongst large cap companies, 2015 was the largest year ever for U.S mergers and acquisitions. With deals such as the $108B acquisition of SABMiller by AB , the $50B acquisition of BG Group by Shell, and the $61B acquisition of Time Warner Cable by Charter Communications; 2015 has set a groundbreaking $4.7 trillion sum for global deals in M&A. However, 2016 has seen a slowdown in the growth of global M&A deals, due to reasons such as the US Department of Justice cracking down on antitrust violation and the volatility spurred from the Brexit vote for Britain to leave the European Union. Despite the overall slowdown, opportunities for M&A have risen in the technology, pharmaceutical, and mining sectors.
Technology companies in the space of data analytics, cloud computing, block-chain technology and network security have seen significant growth in the past few years; mostly due to new applications of these technologies in the financial services sector. Many Fintech companies are developing products that could structurally change the administration of data in financial institutions, with a move towards a more streamlined way to securely process and store information. Though opportunities are apparent in the world of technology, competition is also at an all-time high. M&A multiples in the sector are nearing record highs with investors eager to cash-in on the next big tech innovation.
The pharmaceutical industry remains promising for M&A growth. With large cash reserves, low interest rates and general reluctance to invest large amounts in research and development, pharma companies have been looking to inorganically boost earnings growth through the acquisitions of smaller companies. Some key drivers that will influence M&A growth within the sector include: the ability to gain access to clinical research, patent expiration on leading drugs, and the general regulatory framework surrounding the industry. It is important to consider how policy changes can impact M&A transactions within the pharma industry. For example, the $160B merger between Pfizer and Allergan was called off almost immediately following the release of the new corporate inversion policy from the United States Treasury Department.
The energy and natural resource M&A market is largely determined on the underlying commodity prices. 2015-2016 has seen a large downturn in the price of oil and a significant upswing in the price of gold and silver. Due to the nature of the oil/gas market, there is a low potential for synergy and cost savings on underperforming assets; many companies are stuck with weak balance sheets and break-even points at $80/barrel oil, which is why we have seen a slowdown in the oil/energy sector. In contrast, the gold market has shown high potential for M&A growth. The highly fragmented market could potentially entice large players such as Barrick, Newmont, AngloGold Ashanti and Goldcorp to start consolidating their smaller competitors (especially in response to the rallying gold commodity prices).