Strong UK/US axis helps drive resurgence in UK deals market in Q1

BY Fraser Tennant

The UK deals market is experiencing a major resurgence, with Q1 deal volumes up 50 percent on Q1 2014 and total deal values increasing by 96 percent, according to a new deals index published by PwC this week.

The PwC Deals Index, a survey of 103 c-suite private equity and corporate respondents, tracks global deals over £25m involving a UK asset or acquirer. Much of the resurgence in UK deal activity, claims PwC, is due to the number of 'mega deals' and the ongoing availability of capital.

Key findings presented by PwC include the disclosure that although corporate activity was the main driver of growth in terms of deal numbers – accounting for 70 percent growth compared to growth of just 2 percent in private equity led deal numbers – private equity has turned its attention to much larger deals, with average deal sizes rapidly increasing from £97m to £235m in Q1 2015.  

As far as average corporate deal values are concerned, the Index finds them remaining steady at £153m in Q1 - up from £142m in the previous quarter.

“Although headline numbers across all deal sizes showed a decline in this quarter, the market for larger deals was significantly more positive driven by the improving macroeconomic environment, increased market confidence, favourable debt markets and a strong UK/US deals axis," commented Stuart McKee, PwC's head of corporate finance in the firm’s UK deals business.

Despite the positive outlook for the UK deals market highlighted by PwC, many survey respondents stated that they believe the rapid increase in UK M&A activity seen in Q1 will begin to slow later in the year, but that the outlook for Q2 remains positive. In terms of Q2 deals, 36 percent of corporate respondents said that they are likely to make an acquisition in Q2 2015, while 85 percent of private equity respondents made a similar claim.

“Embedded in these statistics are a number of transformational deals led by private equity,” explains John Dwyer, PwC’s global head of deal business. “Our latest research indicates that our survey panel expect deal activity to remain strong for the next six months before tailing off towards the end of 2015.”

Report: PwC Deals Index Q1 2015

CVS and Omnicare in $12bn deal

BY Richard Summerfield

CVS Health Corporation has agreed to acquire Omnicare Inc for a total enterprise value of approximately $12.7bn, including $2.3bn in existing debt. The deal will see CVS pay around $10.4bn, or around $98 per share, in cash. The agreed price represented a 4 percent premium over the company’s closing price on 20 May, the day before the deal was announced.

The two companies expect the deal to be completed near the end of 2015, subject to approval by the holders of Omnicare's common stock, as well as other customary closing conditions, including applicable regulatory approvals.

Omnicare has a burgeoning reputation in the pharmaceutical sector and is a rising firm in the business of prescription fulfilment for diseases including cancer and multiple sclerosis. The firm is also the largest provider of prescription medication to nursing, assisted living and other healthcare facilities in the US.

"The acquisition of Omnicare significantly expands our business, providing CVS Health access into a new pharmacy dispensing channel," said CVS Health's president and chief executive Larry Merlo, in a statement announcing the deal. "It also creates new opportunities for us to extend our high-quality, innovative pharmacy programs to a broader population of seniors and chronic care patients as they transition across the care continuum. We have been impressed by the Omnicare team and what they have created for the patients they serve."

CVS intends to complete the transaction by utilising $13bn of fully committed unsecured bridge financing which has been secured from Barclays Bank. The company also expects to put in place permanent financing in the form of senior notes and/or term loans prior to the closing of the transaction.

The rapidly ageing US population has made the long term care segment of the healthcare system an extremely attractive proposition. As such, CVS’ play for Omnicare positions the company nicely for the future, as healthcare for the elderly is likely to be a considerable growth area moving forward.

News: CVS to expand pharmacy business with $10.1 billion Omnicare buy

M&A activity in power and utilities sector hits four-year Q1 high

BY Fraser Tennant

Mergers and acquisitions (M&A) activity within the power and utilities (P&U) sector propelled Q1 deal value and volumes to a four-year high, according to a new EY report.

The first quarter data showcased in EY’s ‘Power transactions and trends 2015’ reveals that total deal value reached US$29.7bn, deal value in Europe (the leading Q1 M&A destination) was US$11.4bn, and the total Q1 deal volume was 101 – all pointers to yet another strong year for M&A in the P&U sector.

The demonstrably burgeoning level of M&A activity seen across the globe is partly due, says EY, to energy reforms and unbundling (ERU) – an emerging trend involving governments opening up their energy sectors to competition. Indeed, ERU has recently been introduced in China and Japan, with both territories initiating reforms designed to break the dominance of state-owned monopolies.   

“We expect to see more deals involving consortiums as utilities and financial investors recognise the opportunities for collaboration," confirms Matt Rennie, EY’s global TAS power & utilities leader. “Conventional P&U companies are expected to focus on new areas of growth such as evolving technologies, energy services and fuel supplies.”

The EY report also states that: (i) during Q1, US utilities turned to consolidation to meet the challenges of a stringent regulatory environment, weak earnings growth and declining returns on equity; (ii) in Europe, utilities continued to sell assets – mostly to financial investors – as they prioritised core business; (iii) Asia-Pacific deal activity was dominated by Chinese utilities, which are looking to consolidate to secure greater market share in the domestic market; and (iv) in Africa, a lack of local funding sources created opportunities for foreign investors to take a prominent role in financing power projects, as governments made moves to ease risks for investors.

“As the year progresses, we expect to see a rise in the number of deals involving consortiums as utilities and financial investors recognise the opportunities for collaboration," continues Mr Rennie. “Given a weak growth outlook in key regions, conventional P&U companies will focus on new areas of growth such as evolving technologies, energy services and fuel supplies.”

Report: Q1 2015 Power transactions and trends

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