Despite volatility in the second half, 2014 turned out to be a banner year for global M&A, with $3,978 billion worth of business inked worldwide by November. But this activity has yet to migrate to the smaller end of the market. According to JPMorgan, there had been 190 M&A deals with a value of less than $100 million by November 2014, (down from 217 in 2013) while those with a value greater than $10 billion grew to 713 (from 496 in 2013). Jumbo US deals dominated the market: Comcast/Time Warner ($69.8bn), AT&T/DirectTV ($67.1 billion), Actavis/Allergan ($65.7 billion), with the largest European deal being the $40.6 billion Holcim/Lafarge merger in April.
Bankers are optimistic, however, that European volumes are set to grow. “Share prices are at healthy levels and this brings responsibility,” says Vis Raghavan, head of banking EMEA at JPMorgan in London. “There is a lot of earnings expectation; if corporates don’t deliver then they will see a re-rating of their stock. There are more activists and value investors in Europe now, and there is a lot of pressure on boards to deliver on growth either organically or through M&A.”
More equity was placed in Europe than the US for the first time ever in 2014, the key driver of this being the surge in IPOs. Fewer sponsor-driven IPOs are expected in the region in 2015 but there should be more activity from large corporates considering carve-outs, spin-offs and broader M&A. In November, German energy utility E.on announced the spin-off of its fossil fuel and nuclear generation business into a separate entity and others are likely to follow.
“Recently we have seen an average 4% share price gain for acquiring companies showing that investors are happy to back strategic moves,” says Raghavan.
Ryan O’Grady, co-head of global investment grade syndicate at the US bank agrees that corporates are under increasing pressure from their shareholders. “We are entering a phase where there will be more focus on the equity holder,” he explains. “Corporates will introduce leverage on their balance sheets to satisfy equity holders but we are very early on in this cycle.”
As 2014 drew to a close the big unknown was the impact that the collapse in the oil price would have on M&A in the energy sector worldwide. “It will be interesting to see what the fall in the oil price means from a deal perspective,” says Richard Sheppard, head of UK M&A at Deutsche Bank. “There might be some share-for-share consolidation as this de-risks the impact of oil price volatility going forward. We might also see major players examine opportunities more closely.”