Geopolitical uncertainty and buoyant M&A can coexist, says new report

BY Fraser Tennant

Despite ongoing geopolitical uncertainties, companies are continuing to greenlight mergers & acquisitions (M&A) deals in the search for growth, according to EY’s new Global Capital Confidence Barometer.

The Barometer, while recognising that geopolitical concerns are a mainstay feature of the boardroom, notes that such issues are being overshadowed by more immediate and pressing risks and opportunities, with boards increasingly focusing on countermeasures against technological disruption and seizing new routes to growth - countermeasures that often involve M&A transactions.

As a consequence of this focus, the M&A market is currently a healthy environment, with dealmakers expecting further activity in the year ahead.

Among the Barometer’s key findings: (i) 56 percent of companies intend to acquire in the next year; (ii) 73 percent have increased the frequency of the portfolio review process; (iii) 69 percent cite a broad range of geopolitical or emerging policy concerns as the greatest risk to business; (iv) 79 percent of US executives actively plan to pursue deals; (v) 64 percent are looking at cross-border deals to secure market access and grow their customer base; and (vi) 90 percent expect their pipeline to increase or remain stable.

EY also reveals that 97 percent of senior executives expect corporate earnings to accelerate or remain stable, while 64 percent believe that the global economy will improve, despite today’s heightened geopolitical uncertainties.

“While technology and digital disruption are major drivers of the current market, other considerations are also spurring deal activity,” said Steve Krouskos, global vice chair of transaction advisory services at EY. “Geographical expansion to secure supply chains and increase customer reach will accelerate cross-border M&A. Private equity is returning to replenishing mode. Lastly, corporates are increasingly reassessing and reshaping their portfolios, creating a natural pipeline of deal opportunities.”

Sceptics, however, maintain that heightened levels of deal activity are leading to too many bad deals being pursued, a claim that Mr Krouskos dismisses, stating that this is not the case in today’s M&A market. “Companies are using advanced analytics, combined with data-driven diligence and integration, to target the right deals and integrate them in the right way,” he says.

So, can heightened geopolitical uncertainties and buoyant M&A coexist? The answer, says EY, is a resounding yes.

Report: Global Capital Confidence Barometer - Can complex geopolitical uncertainty and record M&A coexist?

Becton and Bard broker $24bn deal

BY Richard Summerfield

US medical technology firm Becton Dickinson has agreed to acquire healthcare equipment manufacturer Bard in a cash and shares deal worth $24bn.

The deal, which is expected to close in the second half of 2017, will see Bard’s common shareholders receive around $222.93 in cash and 0.5077 shares of Becton Dickinson stock per Bard share held, or a total value of $317 per share, based on Becton’s closing price on 21 April, the last working day before the deal was announced. That price represents a 25 percent premium to the Bard share price at the end of last week. In total, Bard shareholders will own around 15 percent of the newly combined company. Becton will fund the deal by borrowing around $10bn, by selling about $4.5bn of equities and equity-linked securities to finance the cash component of the price and by issuing about $8bn in new equity for Bard’s shareholders.

In a statement, Vince Forlenza, Becton’s chairman and chief executive officer, said, “Combining with Bard will accelerate our ability to offer more comprehensive, clinically relevant solutions to customers and patients around the globe, creating a strong partner for healthcare providers who are increasingly focused on delivering better outcomes at a lower total cost. Our two purpose-driven organisations are well-aligned strategically, sharing a strong track record of performance and a deep commitment to addressing unmet needs in today’s challenging healthcare environment. We expect the transaction to contribute meaningfully to BD’s plans for revenue growth and margin expansion, and generate outstanding value both near- and long-term for shareholders.”

The opportunity to expand Becton’s portfolio of brands was too good for the company to pass up, particularly in key foreign markets. Bard is one of the fastest-growing medical technology companies in emerging markets, and the combined company will have annual revenues of about $1bn in China.

Tim Ring, Bard’s chairman and chief executive, said, “We are confident that this combination will deliver meaningful benefits for customers and patients as we see opportunities to leverage BD’s leadership, especially in medication management and infection prevention. We also believe that we can expand our access to customers and patients through BD’s strategic selling capabilities, and that our fast-growing portfolio in emerging markets can significantly benefit from their well-established international commercial infrastructure. Our two companies share the conviction that a product leadership strategy focused on unmet needs and improved outcomes that provide economic value to the global healthcare system will provide long-term shareholder returns.”

News: Becton Dickinson to acquire Bard for $24 billion

Cardinal Health to buy Medtronic units in $6.1bn deal

BY Richard Summerfield

US drug distributor Cardinal Health Inc has agreed to acquire Medtronic PLC’s patient monitoring and recovery unit for $6.1bn in cash. However, reaction to the acquisition has been far from positive, with Cardinal’s share price plummeting in the aftermath of the deal announcement.

According to a statement announcing the deal, Cardinal will fund the acquisition with $4.5bn of new debt and existing cash. The deal structure has proved unpopular, however. Indeed, Fitch Ratings has raised concerns over Cardinal’s debt and, as a result, lowered its outlook on the healthcare services company. In total, Cardinal’s share price fell 13 percent to $71.40.

On the Medtronic side of the transaction, the company is making moves to shed a number of assets in light of its $50bn acquisition of Irish healthcare product manufacturer Covidien in 2015, in a so-called ‘inversion’ deal.

Cardinal will acquire Medtronic’s patient care, deep vein thrombosis and nutritional insufficiency units which will include 23 product categories in total, encompassing multiple market settings, including brands such as Curity, Kendall, Dover, Argyle and Kangaroo.

“Given the current trends in healthcare, including aging demographics and a focus on post-acute care, this industry-leading portfolio will help us further expand our scope in the operating room, in long-term care facilities and in home healthcare, reaching customers across the entire continuum of care,” said Cardinal's chief executive, George S. Barrett, in a statement.

"This is a positive transaction for all involved - Medtronic, Cardinal Health, and our respective shareholders and employees - who we believe will all thrive under this change in ownership. In addition, it signifies our commitment to disciplined portfolio management," said Omar Ishrak, Medtronic's chairman and chief executive officer.

He contoinued: "Medtronic has had a specific focus over the past several years on ensuring that we are delivering compelling clinical and economic value to health systems and patients around the world. Ultimately, we came to the conclusion that these products - while truly meaningful to patients in need - are best suited under ownership that can provide the investment and focus that these businesses require. At the same time, we can put these proceeds to work, investing over the long-term in higher returning internal and external opportunities that are more directly aligned with our growth strategies of therapy innovation, globalisation, and economic value."

The deal is expected to close in the second quarter of Medtronic's fiscal year 2018, subject to receipt of customary regulatory approvals and satisfaction of other customary closing conditions.

News: Cardinal Health's dull forecast drags rivals' shares despite Medtronic buy

Bribery and corruption is widespread in EMEIA, claims new fraud survey

BY Fraser Tennant

Bribery and corruption is a huge problem in Europe, the Middle East, India and Africa (EMEIA), with unethical behaviour and high levels of mistrust among colleagues typical of today's workforce at larger companies, reveals a new EY fraud survey.

According to ‘Human instinct or machine logic: Which do you trust most in the fight against fraud and corruption?’, an average of 51 percent of those surveyed (4100 senior company executives spanning 41 countries) said they assume that business transactions in their country involve bribery and corruption.

Among the report’s other key findings: (i) 25 to 34 year-olds are more corrupt than other age groups and assume that management is also corrupt; (iii) whistleblowing is not being effectively implemented, with employees often not knowing to whom they can report a suspicious person; and (iii) efforts by regulatory authorities are hitting home, with three-quarters of survey respondents supporting individual responsibility for managers.

The EY fraud survey comes at a time when significant and sometimes unexpected political change is spreading economic uncertainty, presenting businesses with new challenges and opportunities in an increasingly disrupted world. At the same time, the challenges facing businesses continue to mount – such as the pace of technological change, shifts in consumer demands, the changing makeup of the workforce and the constant pressure of growth.

Given these significant political and economic changes, business conduct is now under scrutiny like never before. Businesses must find alternative ways to meet ambitious revenue goals and be responsive to the significant public demand for businesses to be held to account through greater transparency and accountability where traditional compliance frameworks may no longer be valid.

"The diesel dupe, the Libor scandal, illegal price fixing and intentionally falsely declared meat; compliance violations are constantly hitting the headlines,” said Michael Faske, head of fraud investigation & dispute services at EY. “The results of our survey show that unethical behaviour and a high level of mistrust among colleagues are typical of today's workforce at large companies. This applies in particular to managers and the youngest generation.

“The requirements of the regulatory authorities have continued to grow and even the companies themselves have introduced strict compliance regulations. In the perception within and outside of the company, these rules do not change anything however, if they are evaded by individual employees or even by the management committee."

Although the survey does highlight progress and improvement in some emerging economies , overall the fight against bribery and corruption remains a major challenge across the EMEIA region.

Report: Human instinct or machine logic: Which do you trust most in the fight against fraud and corruption?

Detection and understanding: getting cyber security off the back burner

BY James Williams

A “worrying” number of UK businesses have no formal plan to protect themselves from a cyber attack – a position that has improved little since last year – according to a new survey from the Institute of Directors (IOD) and Barclays bank.

The survey, ‘Cyber security: Ensuring business is ready for the 21st century’, reveals that although 94 percent of UK businesses believe that the security of their IT software is crucial for protection, only 56 percent have a system in place to preserve their data and devices.

In addition, only 44 percent of survey respondents said their company provided cyber awareness training schemes for staff, a figure deemed to be a “significant problem”. Pointedly, the survey states that the key cyber security vulnerability is human error, and that such errors become ever more likely in the absence of training or clear guidelines as to what constitutes appropriate good practice.

Furthermore, despite the number of cyber attacks that over the last year, as many as 40 percent of survey respondents admitted that they would not know who to contact to report online fraud – an unawareness which will become much more acute in May 2018 when the new General Data Protection Regulation (GDPR), which makes companies much more accountable for their customers’ data, comes into force.

“Cyber criminals attack systems, data and networks virtually without intervention and traditional defences are no longer adequate”, said Troels Oerting, group chief information security officer at Barclays. “For the financial sector in particular, the game has changed. Barclays has already implemented a strong protection for our business and we will continue to adapt to the rapid change in cyber space.

As part of its bid to tackle the cyber security issue, the UK government has taken a number of positive steps in the last year to protect business and consumers, with the opening of the National Cyber Security Centre (NCSC) one of the more high-profile initiatives. By bringing together several different agencies and placing the NCSC within the Government Communications Headquarters (GCHQ), the aim is that UK authorities will be well-placed to detect and understand cyber threats. That said, the survey makes clear that the ultimate responsibility for businesses in the UK will always lie in the boardroom.

Mr Oerting concluded: “For centuries, society and banks have steered through unprecedented events. Cyber crime is another challenge, and it too can be managed by implementing a strong strategy built on resilience and intelligence.”

Report: Cyber security: Ensuring business is ready for the 21st century                    

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