M&A market booms

BY Richard Summerfield

The global M&A market is booming with average deal sizes climbing in the first half of the year, according to Pitchbook’s ‘2Q 2018 Global M&A Report’.

“The M&A market is inexorably linked with business sentiment, corporate fundamentals and macroeconomic forces,” said Wylie Fernyhough, an analyst at PitchBook. “With all these indicators continuing to trend positively, the global M&A boom shows no signs of stopping and the announced deals should ensure M&A activity continues to flourish throughout the rest of the year.”

In Q2, across the US and Europe there were 4735 completed deals totalling $987.8bn in value, a decline of 2 percent and an increase of 24 percent respectively, over the first quarter of 2018. Q1 saw 4823 deals worth $799.7bn. The mega-merger market remained strong in H1, with 31 deals recorded worth in excess of $5bn. Vodafone's $21.8bn purchase of UPC Czech was one of five deals above $10bn which closed in Q2 and which caused a rise in average deal value.

In total, across Europe, there were 3424 transactions completed totalling $569.7bn, compared to 5336 deals valued at $797.8bn achieved in the same period last year. Despite this decline, European M&A has not yet suffered the prophesised negative effects of Brexit.

Thirteen mega-deals were closed in 2018, five of which were in the UK, including announced deals such as Takeda’s bid for Shire worth $62bn and the ongoing $34bn tug of war between Fox and Comcast for Sky. North America saw 5213 deals completed, worth $1 trillion.

The financial services sector saw deal value fall in H1 2018, however, as fewer large deals closed. The sector saw 790 completed transactions with a total value of $161.5bn, down from 960 deals with a value of $227.6bn in the first half of 2017. Regardless of the slow start to 2018, the sector did see two notable deals in Q2, including the $3bn acquisition of Pure Industrial by Blackstone and Ivanhoé Cambridge.

One of the key deal drivers going forward may be the ongoing shift in global interest rates. In North America rates have risen, whereas in the eurozone rate rises may still be a year away. As a result, many companies may be pushing through acquisitions in the short term in order to secure more attractive financing before rates rises potentially derail transactions, making them financially unattractive.

Report: 2Q 2018 Global M&A Report

Starwood clinches GE asset deal

BY Richard Summerfield

GE Capital has agreed to sell its GE Energy Financial Services’ Project Finance Debt Business to Starwood Property Trust for $2.56bn, including $400m of unfunded loan commitments.

The business includes a platform and leadership team, along with 21 full-time employees working on loan origination, underwriting, capital markets and asset management. The transaction, which is expected to close in Q3 2018, will, Starwood believes, boost the company’s core earnings.

The deal will see Starwood expand beyond the real estate industry after seven years of unsuccessfully attempting to diversify. GE, by contrast, is in the midst of an effort to divest its assets and refocusing its efforts on power plants and renewable energy. Thus far, the company has raised billions of dollars through asset sales. In June, GE also said it would separate its healthcare unit and sell a stake in Baker Hughes. The company has also agreed to merge its locomotive unit with Wabtec Corp and its industrial gas-engine business to Advent International Corp.

“The sale of the Project Finance Debt Business is aligned to GE Capital’s overall balance sheet reduction efforts and reflects progress against our strategy announced in January 2018,” said Alec Burger, president of GE Capital. “The business is highly complementary to the Starwood Property Trust platform, which has deployed over $44bn of capital since its inception in 2009 and has vast lending experience across diversified assets and geographies.”

“It has been our intention since we began Starwood Property Trust to build a multi-cylinder finance company, with the thought that we should never overstay our welcome in any one business line and always have opportunities to deploy capital into only those verticals where reward clearly outweighs risk,” said Barry Sternlicht, chairman and chief executive of Starwood Property Trust.

He added: “From our basic and still most important business as one of the nation's largest commercial real estate lenders, we have successfully diversified the company. We have built a world-class conduit lending and CMBS trading platform, bought in excess of $3.5 billion of property assets to yield double digit current returns on equity deployed, and created, from a standing start, a very successful single family lending platform. Today we are pleased to announce we are adding a new cylinder to our Company, with the return on investment profile and ability to scale to be material to our $14 billion enterprise.”

News: Starwood Property to buy part of GE Capital's energy finance unit for $2.56 billion

Leo Pharma acquires Bayer’s prescription dermatology portfolio

BY Fraser Tennant

In a deal intended to bolster its role as a leading global dermatology company and achieve its goal of helping 125 million patients by 2025, multinational Danish pharmaceutical company Leo Pharma has acquired German multinational pharmaceutical and life sciences company Bayer AG’s global prescription dermatology portfolio.

Bayer’s portfolio includes branded topical prescription treatments for acne, fungal skin infections and rosacea, as well as a range of topical steroids with an annual turnover in 2017 of more than €280m. The definitive agreement will enable Leo Pharma to expand significantly in key markets worldwide and broaden its therapeutic areas.

The transaction does not include Bayer's over-the-counter dermatology portfolio of brands.

“We are very excited about this agreement,” said Gitte P. Aabo, president and chief executive of Leo Pharma. “With the strong prescription dermatology brands and new colleagues from Bayer, we will broaden our treatment range and considerably enhance our size in key markets around the world – underlining our ambition to be a preferred partner in medical dermatology.” Approximately 450 people will join Leo Pharma as part of the transaction.

“We are very pleased to have found a good partner in Leo Pharma, which has a long history as a leader in scientific advancement and a culture that values discovery and innovation,” said Heiko Schipper, a member of Bayer’s board of management and president of consumer health. “With the dedicated support of many employees to whom we are grateful, our prescription dermatology business has grown well since becoming part of Bayer AG in 2006.”

The acquisition is expected to close in two steps. First, during 2018 for the US, and second, during the second half of 2019 for all other markets. The transaction is subject to the satisfaction of customary closing conditions, including approval by the competition authorities.

The financial details of the deal have not been disclosed.

Mr Schipper concluded: “Moving forward, we believe that Leo Pharma is the right owner to grow and further the prescription dermatology business, while enabling Bayer to focus on building its core over-the counter brands”.

News: Bayer sells prescription dermatology brands to Denmark's Leo Pharma

Blackrock acquires IT Group in “natural fit”

BY Fraser Tennant

In a deal expected to bring significant benefits to the fields of construction and technology, specialist professional consultancy Blackrock Expert Services Limited is to acquire IT Group, an independent provider of professional services for IT disputes, digital forensics and e-disclosure.  

Both companies have stated their “delight” over joining forces and believe the transaction will allow them to better integrate services in a rapidly growing technology-related expert services market. 

“The shared ethos of quality, integrity and independence meant the two businesses were a natural fit together,” said Giles Derry, chief executive of Blackrock. “The ever-increasing importance of technology in construction and the continued growth of technology, IP and data disputes means this will be an area where access to IT experts is essential.” 

With technology having a more prominent role in construction projects, Blackrock’s acquisition of IT Group is particularly timely, bringing technology expertise in-house and further enhancing Blackrock’s position as a global provider of integrated consultancy services. “There is a scarcity of experienced IT experts in the market place,” added Mr Derry.

Having advised on complex construction projects in 50 countries with a combined value of over £150bn, Blackrock has built a distinguished track record since its founding in 2009. The acquisition of IT Group adds to Blackrock’s portfolio of high-profile contracts.

 “IT Group has been involved in some of the world's largest IT disputes, as well as disputes involving technology in construction projects,” said Tony Sykes, founder and senior partner of IT Group. “We are really excited about the opportunity to advise on Blackrock’s projects as well as continuing to offer technology dispute and forensic services to clients across the group.”   

Experienced in software licensing, IT project management, cyber, data theft and system design and specification disputes, IT Group operates internationally and has worked for insurers and law firms in the UK, US, EMEA and the Far East.

Mr Derry concluded: “The combination of Blackrock and IT Group is entirely consistent with our long-term strategy to provide excellence across a range of expert services.” 

Deals decline

BY Richard Summerfield

Despite favourable macroeconomic conditions and abundant cash levels among keen acquirers, both the number of reported M&A transactions and deal value worldwide declined for the second consecutive year in 2017, according to Wilmer Hale’s ‘2018 M&A Report’.

The number of reported M&A transactions worldwide dropped by 10 percent, from 59,544 deals in 2016 to 53,854 in 2017. Global M&A deal value decreased 9 percent, from $3.59 trillion to $3.26 trillion. The size of the average deal in 2017 was $60.6m, up slightly from the $60.4m in 2016, but trailing the $69.4m average recorded in 2015.

Deal volume in the US fell 13 percent from 21,666 transactions in 2016 to 18,957 in 2017. Deal value also declined by 15 percent, falling from $2.24 trillion to $1.91 trillion. Average deal size fell 3 percent to $100.9m in 2017, from $103.6m in 2016.

There was also a 7 percent fall in deal volume in Europe last year, with 20,721 transactions recorded, down from 22,305 in 2016. Total deal value fell 15 percent from $1.41 trillion to $1.19 trillion. The average deal size recorded also fell by 9 percent to $57.4m in 2017, from $63m in 2016.

The Asia-Pacific region also saw a 9 percent decline in deal volume with 16,926 transactions recorded in 2016 falling to 15,330 in 2017. Total deal value dropped 16 percent, from $1.25 trillion to $1.05 trillion. Average deal size fell 7 percent, from $73.8m to $68.5m.

Deal volumes also declined across a number of key sectors, including technology, life sciences and telecommunications. In the tech space fell, 2017 saw 9016 deals, a fall from 9103 deals in 2016. Deal value also fell for the second year running, declining 35 percent from $522.1bn to $338.4bn.

The financial services industry was the best-performing sector in 2017. Deal activity was up 3 percent to 3042 transactions record last year. Global deal value in the sector did fall by 18 percent, however, from $329.1bn to $271.3bn. Average deal size fell 20 percent, from $111.4m to $89.2m.

Following two consecutive years of declining deal volume and value, Wilmer Hale believes that 2018 could reverse the trend, despite the presence of some prevailing headwinds. A number of key factors should positively influence dealmaking, including improved economic stability and growth in most major economies. In addition, high levels of cash are being held by both strategic and private equity acquirers . Fundraising among private equity firms has also grown for the fifth year running and they are facing increasing pressure to exit investments and return capital to investors.

Report: M&A Report 2018

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