M&A likely in oil & gas space

BY Richard Summerfield               

Over half of the companies operating in the oil & gas sector are contemplating acquisitions in the coming 12 months, according to a new report from EY.

The report – EY’s 'Oil and Gas Capital Confidence Barometer' – which surveyed 112 oil & gas company executives, notes that the industry is in the process of rebounding from the adverse effects of the recent sharp decline in oil prices. As a result, 56 percent of surveyed firms believe they will “actively pursue acquisitions” over the next 12 months – more than double the number of executives who responded similarly in October 2014.

"For the first time in five years, more than half our respondents are planning acquisitions in the next 12 months, as deal pipelines continue to expand," said EY global vice chair for transaction advisory services Pip McCrostie. However, despite the recent acquisition of BG Group by Royal Dutch Shell, the main focus for acquiring companies will not be big ticket mega-mergers. Indeed, most acquiring companies – 70 percent of respondents – are likely to focus on mid-market transactions, with the majority of deals expected to be pitched at around $250m. A further 24 percent of surveyed firms are planning acquisitions of between $251m and $1bn, while just 4 percent of companies are believed to be considering deals worth in excess of $1bn.

The survey was conducted in February and March when Brent crude price averaged below $60 per barrel; accordingly, many of those executives surveyed felt that an improvement in the oil & gas space was inevitable. Ninety-nine percent of respondents felt that the overall deal market would improve or remain stable over the next 12 months. A further 97 percent expressed similar confidence in the global economy.

Despite the resurgence of confidence in the oil & gas sector’s deal environment, residual macroeconomic concerns may still curtail some M&A activity. Increasing volatility in commodities and currencies, as well as persistent disruptive geopolitical influences, cast a potential shadow over future deal activity.  In order to mitigate these risks, firms in the oil & gas space will attempt to cut costs and achieve synergies while continuing to look for opportunistic acquisitions.

Report: Oil and Gas Capital Confidence Barometer

Q1 M&A activity up – Pitchbook

BY Richard Summerfield

2014 was a significant year for M&A activity. As the global economy shrugged off the stymieing effects of the previous decade's financial crisis, M&A returned to the top of the agenda in many corporate boardrooms. Accordingly, 2014 saw a considerable upswing in both deal value and volume.

As 2015 unfolds, it would appear that the substantial momentum witnessed last year has continued into the first quarter of 2015, as noted in Pitchbook's 2Q 2015 M&A Report

According to the report, M&A activity in Europe and the US in the first quarter of 2015 performed admirably, recording an 8 percent increase in deal flow and a 12 percent increase in aggregate deal value on a quarterly basis. The combined value of completed Q4 2014 and Q1 2015 deals approached $1 trillion. As a result of the uptick in M&A activity over the last year and a quarter, there is considerable optimism in boardrooms globally.

In Q1, 4220 deals were completed for a value of $492bn, a 12 percent increase over a strong Q4 2014 and a year on year leap of 74 percent. Throughout Q1, the healthcare sector contributed over $200bn worth of activity to the quarter’s total, accounting for 41 percent of all activity in the period.

While big ticket M&A transactions returned to the fore in 2014, many of the 2015 deals announced to date can be classified as ‘mega mergers’. According to Pitchbook’s data the number of Q1 deals recorded in excess of $5bn has already more than equalled the total of the first three quarters of 2014. As such, mega mergers are expected to remain a key feature of M&A activity this year. Acatvis’ $70.5bn acquisition of rival firm Allergan was one of the most notable deals executed in Q1, and there is considerable expectation that deals of that size might soon become the rule, not the exception.

Report: 2Q 2015 M&A Report

Comcast abandons $45bn mega merger

BY Richard Summerfield

It was supposed to close at the end of 2014, and was the key cog in the rapidly consolidating US television market, yet the $45bn merger between telecommunications giants Time Warner Cable and Comcast was cancelled in late April, citing rapidly mounting regulatory concerns.

The deal, originally announced in February 2014, would have formed a cable and broadband juggernaut, combining the two largest US companies in the space. The merged entity would have controlled 57 percent of the US broadband market and just under 30 percent of pay television service. Accordingly, from the outset there was speculation that the deal would attract the attention of antitrust authorities in the US.

Publicly,  both firms were confident that the deal would go ahead, and gave assurances that competition in the US would remain largely unaffected. Comcast argued that the companies served different enough markets that customers would not notice a drop in competition. The firm also agreed to spin off some Time Warner Cable subscribers to keep its share of the US cable TV market below 30 percent.

Yet despite Comcast’s protestations, the longer the deal dragged on, the louder the voices of dissent became. A month following the announcement of the transaction, the Department of Justice launched an investigation into the deal. The proposed merger also attracted the ire of a number of politicians and consumer groups. By mid April, both the Justice Department and the Federal Communications Commission indicated that they would move to block the deal should Comcast continue to pursue the transaction. In light of the mounting regulatory opposition, Comcast decided to walk away. "Today, we move on," noted Brian Roberts, Comcast's chief executive, in a statement. "Of course, we would have liked to bring our great products to new cities, but we structured this deal so that if the government didn't agree, we could walk away."

Following the withdrawal of the bid, FCC chair Tom Wheeler said the deal would have threatened the emerging ‘over the top’ and streaming services which are changing the nature of consumers’ interaction with media and entertainment. Mr Wheeler stated that "Comcast and Time Warner Cable's decision to end Comcast's proposed acquisition of Time Warner Cable is in the best interests of consumers. The proposed transaction would have created a company with the most broadband and video subscribers in the nation alongside the ownership of significant programming interests.”

The collapse of the deal will have an impact on the wider communications sector. Regional cable operator Charter Communications Inc was due to acquire a number of Time Warner Cable markets which Comcast was planning to divest following the closure. Charter also has a $10.4bn deal for Bright House Networks in place which was reliant on the completion of the Comcast deal. Whether those deals go ahead now remains to be seen, however Time Warner is believed to be open to a potential merger with Charter, two years after the smaller firm launched an unsolicited and acrimonious $37.3bn bid for Time Warner.

News: Comcast drops Time Warner Cable bid after antitrust pressure

Global M&A growth on course to hit five-year high

By Fraser Tennant

Growth in the worldwide mergers and acquisitions (M&A) market is set to hit its highest level in five years, according to EY’s 12th Global Capital Confidence Barometer.

The Barometer, a biannual survey of more than 1600 executives in 54 countries, suggests that the appetite for acquisitions in the market is healthy at present, with 56 percent of global companies intending to acquire in the next 12 months.

EY’s Barometer paints a picture of an already potent market poised to expand further with: (i) global deal value already up 13 percent on 2014; (ii) the number of deals currently in the pipeline up 19 percent on 12 months ago; (iii) 84 percent of firms planning deals abroad; (iv) three-quarters of firms (73 percent) seeking ‘innovative M&A’ deals; and (v) almost half of companies (47 percent) stating that they intend  to complete more deals over the next 12 months than they did in the preceding year.

The UK, China, the US, Germany and Australia are likely to be the top five destinations of choice for investors, according to the Barometer and, in terms of buyers, the US, South Korea, UK, France, Germany and Japan will be the most prominent acquirers. Furthermore, the sectors with the highest level of acquisitive intent are expected to be technology, automotive, consumer products, diversified industrials and financial services.

“The appetite for deals is at a five-year high," says Pip McCrostie, EY’s global vice chair for Transaction Advisory Services. “The Barometer reveals three reasons for the sharp increase in deal making intentions. First, economic divergence fuelled by commodity and currency fluctuations is accelerating cross-border M&A. Second, disruptive innovation is driving inorganic growth strategies at every level of enterprise. Finally, we will see the impact of new entrants and companies returning to the deal market after a hiatus.”

The Barometer also suggests that new buyers will be the ones driving dealmaking activity in 2015, following a period of relative inactivity caused by the recent M&A downturn. “M&A turned a corner in 2014 with deals once again being seen as a route to growth," claims Ms McCrostie. “2015 will see a surge of new entrants and companies returning to the M&A market to generate future growth.”

Report: Global Capital Confidence Barometer-Innovation, complexity and disruption define the new M&A market

Charter to acquire Bright House in $10bn deal

BY Richard Summerfield

The consolidation of the pay television sector shows no signs of abating after Charter Communications Inc announced that it had agreed to acquire privately held cable operator Bright House Networks LLC in a deal worth around $10.4bn.

“Bright House Networks provides Charter with important operating, financial and tax benefits, as well as strategic flexibility,” said Charter’s chief executive Tom Rutledge, in a statement announcing the transaction. Once the deal has been completed the acquisition of Bright House will make Charter the second largest cable television provider in the US.

However, deal closure is contingent on a number of factors outside the control of the merging companies. In order for the deal to proceed, Comcast’s proposed $45bn acquisition of Time Warner Cable must win regulatory approval. Under the terms of that deal, Charter has agreed to pay approximately $7.3bn in cash for 1.4 million Time Warner Cable customers and to swap another 1.6 million customers with Comcast. However, if regulators block the Comcast/Time Warner deal, the agreement to sell subscribers to Charter would be in jeopardy, as would the planned Charter takeover of Bright House.

Should Charter’s acquisition of Bright House win regulatory approval, Charter will retain around 73.7 percent of the newly merged company, while Bright House’s owner, Advance Newhouse,  will hold the remaining stock. Advance Newhouse will receive around $2bn in cash and the rest in common and convertible preferred units of the new company.

The deal would revitalise Charter, which has suffered of late from consumers ‘cutting the cord’ and turning away from traditional cable television services and embracing streaming services provided by Netflix and Amazon Prime. Indeed, in 2014 pay television subscriptions in the US declined by around by 129,000.

News: Charter beefs up cable muscle with Bright House deal