M&A booms in Q1 2015

BY Richard Summerfield

2014 was a notable year for global mergers and acquisitions (M&A) activity, with deal volumes and valuations reaching pre-crisis highs in some regions. This  boom continued into the first quarter of the year, according to data released by Dealogic.

In the first three months of 2015, $902.2bn worth of M&A activity was announced - the highest first quarter total since the $1.08 trillion worth of deals announced eight years ago.

The 14 megadeals – each valued in excess of $10bn – accounted for a significant amount of  announced transactions in Q1, worth a combined $267.4bn. It was the busiest Q1 for megadeals since  15 deals were announced in the first quarter of 2006.

Cross-border M&A also performed well, reaching $315.2bn - the highest first quarter volume since 2007 when activity reached $357.9bn.

The healthcare sector was the most targeted industry, with deal value of $126.5bn. The real estate space was the second most targeted industry last year with $113bn worth of announced deals  across 462 transactions, a leap of 38 percent from Q1 last year.

US targeted M&A climbed 28 percent, with a total of $415bn, up from $324.6bn. This was the highest first quarter total since 2007 when $430.7bn worth of deals were announced.

In Europe, seven of the region’s top 10 sectors saw a year on year increases in volume in the first quarter. In the construction sector, activity climbed to $11.7bn - a more than threefold increase on Q1 2014, which saw just $3.2bn worth of deals.

Report: Dealogic Global M&A Review First Quarter 2015

ChemChina to acquire Pirelli in $7.7bn deal

BY Fraser Tennant

China National Chemical Corp (ChemChina) has announced a $7.7bn deal that will see the state-owned company acquire Pirelli, the world's fifth-largest tire maker.

If the proposed deal for the 143-year-old Italian company is successful, it would be the largest overseas deal seen in China for two years, and another major addition to a growing list of high-profile acquisitions which currently include Volvo cars, Club Med and Sunseeker yachts.

A complicated deal, the acquisition would involve ChemChina paying approximately $1.96bn for a 26 percent stake in Pirelli (owned by Camfin, the holding company indirectly controlled by Pirelli chairman and chief executive Marco Tronchetti Provera) and then launching a bid to buy the rest of the tire maker’s stock.

“Pirelli’s excellent technology and management, and its well-known brand and sales channel, are what we hold high expectations on,” said Ren Jianxin, chairman of China National Chemical Corp. “The strength of Pirelli will add value to our tire business.”

Mr Ren, often referred to as China’s ‘merger king’, is keen to uphold what he sees as the Italian tire maker’s autonomy and reputation for quality. “We will not try to change Pirelli. Pirelli is Pirelli,” he said. “They are of two different tastes, and they’re not the same.”

To help facilitate this, Mr Ren has pledged to keep Mr Provera at the helm of Pirelli for at least the next five years.

Pirelli declined to comment on the deal other than to say that no other companies are bidding for the firm.

On this point Mr Ren warned that any counterbid for Pirelli would “hurt the Italian firm's investors and long-term strategy". He went on to say that his company was “worried that due to cheap liquidity there might be blind competition" but confirmed that no higher offer would be forthcoming as ChemChina had reached the limits of its budget.

And when asked if the acquisition meant that redundancies are likely at Pirelli, Mr Ren responded curtly by saying the deal was about “expanding scale and increasing market share". He also pointed out that despite ChemChina employing 120,000 people across all its operations, the company needed “more people to join” and there are plans in place to invite Pirelli's union members to visit China.

News: ChemChina to buy into Italian tire maker Pirelli in $7.7 billion deal

AbbVie wins Pharmacyclics race

BY Richard Summerfield

Biotech company Pharmacyclics has agreed to be acquired by Chicago based rival AbbVie in a deal worth around $21bn.

Under the terms of the deal, Pharmacyclics shareholders will receive $261.25 per share of the company held. The offer is comprised of a mix of cash and AbbVie equity, and the transaction is expected to close by mid-2015.

AbbVie was a late entrant to the race to acquire Pharmacyclics, beating out competition from Johnson & Johnson and a third, unnamed party to secure the deal. The three way contest for Pharmacylics was driven by interest in the company’s crown jewel – Imbruvica – a cancer drug which could make an important impact on the oncology sector. The company expects US sales of Imbruvica to hit $1bn in 2015, however by 2020 worldwide sales are forecast to reach $5.8bn.

"Team Pharmacyclics is honoured and enthusiastic to join the AbbVie organisation. We share a common purpose. Together and as one, our focus remains to create a remarkable difference for patient betterment around the world," said Bob Duggan, chairman and chief executive of Pharmacyclics, in a statement announcing the deal.

"The acquisition of Pharmacyclics is a strategically compelling opportunity. The addition of Pharmacyclics' talented and innovative team will add enormous value to AbbVie," said Richard Gonzalez, chairman and chief executive of AbbVie. "Its flagship product, Imbruvica, is not only complementary to AbbVie's oncology pipeline, it has demonstrated strong clinical efficacy across a broad range of hematologic malignancies and raised the standard of care for patients."

The deal continues the trend of significant M&A transactions in the pharma and biotech sectors in 2015 to date. With announced deals including Pfizer’s purchase of Hospira for $17bn, Valeant’s acquisition of gastrointestinal drugmaker Salix for $14.5bn, and Shire's $5.2bn deal for NPS Pharma, M&A in the pharma and biotech  reached $70bn by the beginning of March - more than double the level of activity seen in the same period last year.

News: AbbVie to Pay $21 Billion for Pharmacyclics, Maker of a Promising Cancer Drug

Freescale and NXP to form $40bn firm

BY Richard Summerfield       

NXP Semiconductors N.V. and Freescale Semiconductor Ltd this week announced a $16.7bn merger, including the assumption of debt, which will create a firm with a total enterprise value of $40bn.

Under the terms of the deal, NXP will pay $6.25 in cash and 0.3521 shares of NXP stock for each share of Freescale stock. In a statement announcing the transaction, NXP confirmed that the deal will be funded with $1bn in cash and a $1bn debt offering, in addition to around 115 million new NXP shares.

“Today’s announcement is a transformative step in our objective to become the industry leader in high performance mixed signal solutions. The combination of NXP and Freescale creates an industry powerhouse focused on the high growth opportunities in the Smarter World. We fully expect to continue to significantly out-grow the overall market, drive world-class profitability and generate even more cash, which taken together will maximize value for both Freescale and NXP shareholders,” said Richard Clemmer, NXP’s chief executive officer in a statement announcing the deal.

The deal will create an industry heavyweight with about $10bn in annual sales. The largest producer of analogue chips, microcontrollers and other types of semiconductors, Texas Instruments, had sales of around $13.05bn in 2014.

Although the deal has been unanimously approved by the boards of directors of both companies, it is still subject to regulatory approvals in various jurisdictions and customary closing conditions. The deal, expected to close in the second half of 2015, must also be approved by shareholders. Once the merger has been completed, Freescale’s shareholders will own around 32 percent of the new firm. NXP’s stockholders will hold the remaining 68 percent.

The transaction will see a conglomerate of private equity investors, including Permira, Blackstone, Carlyle and TPG Capital, complete a partial exit of Freescale, acquired by the consortium in 2006 for $17.6bn. The group currently owns 64 percent share of Freescale. Once the deal has been finalised, the private equity firms will still hold around 19.1 percent of the merged company.

News: NXP to buy Freescale Semiconductor to create $40 billion co

M&A activity in 2015 to yield continued growth for utilities and financial investors

BY Fraser Tennant

M&A activity throughout 2015 will yield continued growth for utilities and financial investors according to the latest Power and Transactions Trends report published by EY.

As well as predicting another robust year for the M&A transactional landscape, EY’s report – ‘Power transactions and trends: global power and utilities transactions review’ also takes a look back at 2014 – a pivotal year for the global power and utilities (P&U) sector.

EY expects M&A activity throughout 2015 to be shaped by the following criteria: (i) low power prices have made unregulated generation unprofitable for some diversified utilities - this, along with the recent price recovery, coupled with the resulting declining reserve margins in the near term in many regions, points to an active IPP market; (ii) large diversified utilities are streamlining operations by focusing on stable regulated assets, as well as consolidating positions through acquisitions in high-growth regions;  (iii) in a bid to hedge against commodity price volatility, utilities are likely to shift some investment focus towards vertical integration by acquiring midstream and upstream assets; (iv) as more countries implement policies in support of renewable energy, this will lead to heightened M&A activity in this space across all regions; (v) the urgent need for increased levels of electrification will see emerging markets, such as Africa, Mexico, India, Chile and Brazil, present significant opportunities for global investors; and (vi) financial buyers, including pension funds, are increasingly investing in the P&U sector, particularly in infrastructure fund investments.

The EY report also projects that market reforms will drive activity in Japan, Mexico and Africa during 2015, attracting many of the world’s biggest power and utilities investors.

“In 2015, we expect to see Japan and Mexico grow further, and we are calling out Africa as the next area of growth, as governments alter structural arrangements to welcome new entrants,” said Matt Rennie, EY’s global TAS power & utilities leader. “Africa faces tremendous challenges and opportunities in its quest for greater levels of electrification, and, in turn, economic prosperity.

“As always, we expect consortia based entry strategies will best navigate local business and legislative regimes, a tactic which offers opportunities for both inbound and domestic utilities.”

Report: Power transactions and trends: global power and utilities transactions review