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 Inbev, 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).