- Dealmaking is off to a hot start in 2018, with nearly $US225 billion in mergers-and-acquisitions volume in January.
- Several ingredients are present that could keep M&A humming along, according to Lazard CEO Ken Jacobs.
- “Confidence levels in the boardrooms among CEOs is as good as I’ve seen it for a long time,” Jacobs told Business Insider
Wall Street firms expected a hot start for mergers and acquisitions in 2018, and that’s exactly what unfolded in January.
Many corporate boardrooms were in wait-and-see mode toward the end of 2017 with tax reform hanging in the balance. But with the new law in place at the beginning of the year, and a lot more cash for companies to play around with thanks to the slashed corporate tax rate and repatriation holiday, many analysts suspected a wave of deals was on the horizon.
Here’s what materialised:
- Bacardi snapped up Patrón for $US5.1 billion.
- Keurig Green Mountain bought Dr. Pepper Snapple for $US18.7 billion, the largest soft-drink transaction on record.
- We saw $US20 billion in biotech transactions in a single day.
- And at the end of the month, Blackstone Group paid $US17 billion for Thomson Reuters’ financial data business.
In all, there was nearly $US225 billion in announced deal volume in January, according to data from Bloomberg, the highest volume for January since 2000.
“I think the clarity around US tax policy removed some of the uncertainty that hindered large-cap M&A business,” Ken Jacobs, the CEO of independent investment bank Lazard, told Business Insider.
Jacobs’ firm, which this week reported $US1.13 billion in revenue from advising on strategic transactions in 2017, has had a role in several of the top deals of 2018 thus far, including the Bacardi-Patrón tie-up as well as both of French pharma company Sanofi’s acquisitions – the $US11.6 billion deal for Bioverativ and the $US4.1 billion deal for Ablynx.
But is this a temporary boon for M&A, or will 2018 takeovers continue at a torrid pace?
One investment banker that helped engineer one of January’s largest megadeals cautioned that it could just be the release of pent up demand – a glut of M&A that was already in the works but was held up as people waited for dust to settle with all the legislative commotion on Capitol hill.
However, there’s ample cause to believe the enthusiasm for dealmaking could continue.
Aside from the bump from tax reform, all the major global economies are growing in sync for the first time since the financial crisis, which also contributes to a favourable environment for dealmaking.
There are risks that could torpedo the buoyant global markets, such as heightened inflation or a geopolitical flare-up, but Jacobs anticipates global economic growth will persist, even if markets grow more volatile.
“The macro environment feels stable and is likely to stay that way for a while,” said Jacobs, who added that the main ingredients are present for a healthy M&A market.
Valuations remain rich in the US, but they’re not excessive enough to curb dealmaking, especially given the backdrop of improved earnings, Jacobs noted.
Financing also remains cheap and widely available, and confidence in the corporate boardrooms has surged – both key factors for spurring M&A, according to Jacobs.
“Confidence levels in the boardrooms among CEOs is as good as I’ve seen it for a long time,” he said.