The pandemic may have put new M&A discussions on hold for now, but many strategic transactions already underway continued towards the finish line in the first half of 2020. Morgan Stanley was to the fore in the biggest, most complex, cross-border ones.
In May, AbbVie completed the acquisition of Allergan for $63 billion in cash and stock, after the US Federal Trade Commission (FTC) approved both sides’ agreement to dispose of certain Allergan assets. The three-two vote in favour came after a nine-month investigation that led some investors to doubt it would go ahead.
“It looks like a large standard pharma merger between two US-listed companies, but Allergan is domiciled in Ireland and subject to the Irish takeover code. So, as well as seeking FTC approval, we had to conduct all the valuation and structural negotiations according to Irish law,” says Colm Donlon, head of M&A for Europe, Middle East and Africa at Morgan Stanley, lead financial adviser to AbbVie.
Morgan Stanley had long been close to AbbVie, having advised on the company’s separation from Abbott Laboratories in 2013. But it had also previously worked for Allergan, advising in 2016 on the proposed $160 billion inversion deal with Pfizer, which would have been the largest pharmaceuticals transaction in history. It unravelled following tax law changes to stop US companies moving overseas.
“Having previously worked for both sides, we stood back and took the clients’ direction as to where they would be most comfortable for us to be,” says Donlon. “We know that companies rate our healthcare team very highly and trust Morgan Stanley. The last thing we wanted was to be a problem for either side.”
Capital commitments
It’s a sign of the firm’s standing in M&A advisory that there was never any question that it should be absent from the third-largest healthcare M&A transaction ever.
Through its lending joint venture with MUFG, Morgan Stanley provided a fully underwritten $38 billion bridge facility to finance the deal. “In the past, companies looked to the big universal banks to finance large acquisitions,” says Rob Kindler, global head of M&A. “Now, in addition to our industry-sector knowledge, broad geographic reach, long-term client relationships, activism expertise, M&A structuring experience and a leading equity franchise, Morgan Stanley is able to provide the kinds of massive capital commitments that offer certainty and make bids less likely to leak.”
It has been a very successful year for us. We worked on eight out of the 10 largest deals around the world, more than any other firm, and Covid did not affect the closing of any of those
Rob Kindler
Between May 1, 2019, and June 30, 2020, Morgan Stanley completed 318 transactions globally worth over $1 trillion. The firm was a top adviser to the buy side.
“It has been a very successful year for us. We worked on eight out of the 10 largest deals around the world, more than any other firm, and Covid did not affect the closing of any of those,” says Kindler.
Morgan Stanley was exclusive adviser to Jio Platforms in India as the company sold a series of stakes to leading tech firms including Facebook and Google, as well as to private equity sponsors. The role came thanks to the strength of the firm’s tech team and its long relationship with Jio’s owner, Reliance Industries.
“This was not simple capital raising,” says Tom Miles, co-head of M&A Americas. “It was a strategic move to bring marquee investors onto the platform, to underpin the business and make it an outright leader in its home market. Executing that required an adviser that knows those marquee tech names and also has strong capabilities in India.”
Aerospace
Morgan Stanley advised United Technologies Corporation (UTC) on the $36.4 billion merger with defence electronics company Raytheon, to create the world’s third biggest aerospace and defence contractor behind Airbus and Boeing. This was completed in April 2020 after regulatory investigations in the US and Europe and objections from activists.
“We had previously worked with UTC on the takeover of Rockwell Collins, which then led to the star-burst transaction of splitting elevator company Otis off from UTC, as well as HVAC [heating, ventilation and air conditioning] company Carrier. It was incredibly bold to pull off that complex merger in the middle of the breakup of UTC,” says Miles.
Brian Healy, co-head of M&A Americas, adds: “Not only did we have to get the Raytheon side comfortable with the intrinsic value of UTC’s Pratt & Whitney aircraft engines business given its investment cycle, we also had to structure an all-stock merger of equals when one side was splitting into three and didn’t have a standalone stock price yet. We had to negotiate an exchange ratio into an entity that didn’t exist.”
Although M&A volumes have now collapsed, Morgan Stanley doesn’t expect to lose market share.
“In a downturn companies want to work with the top advisers. We see this as an opportunity to call on companies that have not historically been clients. We also have a number of cases where two or three long-standing clients want our advice on acquiring the same asset,” says Donlon.
The conflicts committee, at least, remains busy.
