Global M&A hits new high in H1

BY Matt Atkins

The value of global M&A rose 3 percent in H1 2014, hitting $2.03 trillion according to information collected by M&A research firm Zephyr. Volume slipped, however, dropping from 41,496 deals in H2 2013 to 35,429.

In the first six months of the year, deal value increased across most continents. The largest increase was in the Middle East, where M&A value more than doubled from $3.54bn in H2 2013 to $7.13bn. Western Europe increased 19 percent from $464bn to $553bn over the same period while M&A recorded for North America improved marginally, hitting approximately $770bn. Asia-Pacific advanced from $476.75bn to $478.23bn. Of all regions examined, Central and Eastern Europe was the only one to see a decline. Slipping from $124.10bn in H2 2013, to $68.72bn. H1 value in the region was the lowest seen since 2012.

While deal value rose generally, volume declined across the board, with the exception of the US. “M&A value has increased in most regions in H1 2014, with global value reaching its highest level for a number of years," said Zephyr director, Lisa Wright. "The positive result is in stark contrast to global volume, which has hit its lowest point in the last nine periods under review. This suggests that deal considerations are increasing, with acquirers willing to spend more in order to ensure they get the best targets."

The rebound has spread across most sectors except financials, where tougher regulation has suppressed appetite. However, the healthcare sector has been the busiest to date, with deals tripling in value to $317.34bn, according to Thomson Reuters data.

A growing trend in the healthcare sector has been inversions by US firms – allowing them to domicile in a country with a lower corporate tax rate. US medical device maker Medtronic Inc struck a $42.9bn deal for Ireland-based rival Covidien Plc in June, in one of the largest attempted inversions. Pfizer's attempted takeover of AstraZeneca, and AbbVie's offer for Shire, would have seen both firms cut their tax bills while also allowing them to access the cash held offshore without paying US taxes.

The second-busiest sector for dealmaking has been media and entertainment, with deal volumes almost tripling to $220.7bn. This is the largely the result of two mega mergers – Comcast Corp's $45.2bn bid for Time Warner Cable and AT&T Inc's proposed $48.5bn acquisition of DirecTV.

Report: Zephyr Half Year M&A Report: Global, H1 2014

France strikes deal on Alstom sale

BY Matt Atkins

The French government has successfully negotiated a deal to purchase a stake of rail and energy group Alstom from its largest shareholder, French conglomerate Bouyuges. The agreement grants the government an option to buy up to 20 percent of Alstom shares from Bouygues, removing the final hurdle in Alstom's sale to US rival General Electric Co. (GE).

According to Bouygues, which has business interests ranging from construction to telecommunications, the government's option to buy Alstom shares will last for 20 months, beginning after the GE-Alstom deal closes. The government will only be entitled to a 15 percent stake if it does not exercise the option during this period.

GE’s original proposal has changed dramatically since it was first mooted, owing largely to French government pressure. Initially, the US firm offered $17bn for the whole of Alstom's energy business. The government effectively blocked this offer and gave itself veto powers, insisting on assurances for the preservation of Alstom’s strategic operations, the safeguarding of French control over its nuclear business and guarantees on employment.

The new deal, accepted by Alstom’s board on 21 June, will see GE buy Alstom's operations that manufacture natural gas turbines for power plants. In turn, Alstom will buy GE's railway signalling systems division. In addition, GE and Alstom will create three equally owned joint ventures, for power grid, renewable energy and nuclear power businesses. These projects will employ thousands of people in France and make politically sensitive technology, such as turbines for nuclear plants.

The government has declared it will purchase its stake when Alstom shares are trading at their lowest levels. However, this decision may see the state lose money. Part of GE's cash payment – estimated by government officials at between €8bn and €10bn – will be returned to Alstom's shareholders. With Sunday's agreement, Bouygues now is entitled to some of that cash, instead of the government.

News: France claims victory in Alstom deal with US rival GE

Tax concerns secondary in medical mega-deal

BY Matt Atkins

The latest in a string of healthcare mega-deals has been driven by potential synergies rather than tax considerations, according to executives behind the transaction.

On 15 June, US medical device maker Medtronic Inc announced it had agreed to acquire Ireland’s Covidien Plc for $42.9bn in cash and stock. The purchase will see Medtronic move its executive base to Ireland, reducing its overall tax burden. However, a complimentary strategy with Covidien on medical technology has motivated the deal, rather than tax savings, says Medronic CEO, Omar Ishrak. “This acquisition will allow Medtronic to reach more patients, in more ways and in more places. Our expertise and portfolio of services will allow us to serve our customers more efficiently and better address the demands of the current healthcare marketplace.”

The acquisition of Covidien will significantly advance Medtronic’s position as a leader in medical technology and services. The combined company will have a comprehensive product portfolio, a diversified growth profile and broad geographic reach, with 87,000 employees in more than 150 countries. The deal will create a close competitor in size to the medical device business of industry leader Johnson & Johnson Co.

The deal has raised concerns surrounding the number of US firms striking deals that slash their tax bills. While historically quite rare, the acquisition of companies aimed at lowering corporate tax rates is becoming increasingly common. Pfizer’s recently failed bid for AstraZeneca, for instance, has served to refocus attention on so called ‘inversions’. Currently, two Congress bills, along with a White House proposal, are aiming to make the practice more difficult, though neither has gained much traction. This could change if further US firms try to exploit the loophole.

While the deal has sparked debate for all the wrong reasons, it has been welcomed by the Irish firm. “Covidien and Medtronic, when combined, will provide patients, physicians and hospitals with a compelling portfolio of offerings that will help improve care and surgical performance,” said José E. Almeida, Covidien's chairman, president and chief executive. “This transaction provides our shareholders with immediate value and the opportunity to participate in the significant upside potential of the combined organisation.”

The transaction has been approved by the boards of both companies.

Press release: Medtronic to Acquire Covidien for $42.9 billion in Cash and Stock

EU unveils merger simplification package

On 1 January 2014 the EC introduced key reforms to EC merger control rules, with the aim of reducing the information burden on companies, particularly for notification of non-complex mergers, and to streamline the pre-notification process. However, while the new rules will facilitate dealmaking in Europe, they will not in themselves increase the number of deals, and the EU Merger Regulation process will remain more complex and costly for simple transactions than other regimes.

FW spoke to Catriona Hatton at Baker Botts L.L.P., Davina Garrod at Bingham McCutcheon LLP and Ian Giles at Norton Rose Fulbright LLP, about European merger notification and control.

TalkingPoint: Changes to European merger notification and control

Tech M&A on the rise

The technology deal market has displayed tremendous performance over recent years. In terms of total transaction size, the M&A market as a whole increased 4.1 percent in 2012-213 – but the technology M&A sub-sector increased 30.5 percent during the same period. Technology deals overtook the energy, mining and utilities sector for the first time since 2006 and accounted for 23 percent of global M&A activity in 2013. Increasingly, technology firms are using M&A to move into new areas and transactions are being driven by growing demands for reliable and secure mobile infrastructure.

FW spoke to Susan Blanco at Houlihan Lokey, Nick Abrahams, at Norton Rose Fulbright Australia and James Klein at Penningtons Manches LLP about M&A in the tech sector.

TalkingPoint: M&A in the tech sector: outlook for 2014