Global M&A value hit record high in Q1 2018, reveals new report

BY Fraser Tennant

The dramatic surge in dealmaking activity at the tail end of 2017 has continued into 2018, with the value of global M&A reaching a record Q1 value, according to a new report by Mergermarket.

In its ‘Global & Regional M&A Report Q1 2018’, the M&A data and intelligence provider notes that: (i) global M&A reached record levels as corporates pursue innovation through M&A; (ii) private equity (PE) activity recorded its fourth consecutive $100bn figure quarter for buyouts; and (iii) Q1 2018 deal value is up 18 percent on Q1 2017’s value, recording $890.7bn (across 3774 deals).

In addition, while large tech companies have looked to diversify their offering through M&A, more traditional firms also had to react to newer, more innovative firms, with many looking towards defensive consolidation. Recent trade disputes between China and the US have served to boost these defensive strategies further.

Furthermore, global PE activity remained remarkably high, with many investors pursuing larger targets as the mid-market became saturated. In Q1 2018 there were 699 buyouts worth a total of $113.6bn, representing the strongest start to the year since 2007. Q1 2018 is also the fourth consecutive quarter in which buyout activity has reached the $100bn figure.

“The extraordinary surge in dealmaking seen at the end of 2017 has carried through into 2018,” said Jonathan Klonowski, EMEA research editor at Mergermarket. “Global M&A hit its highest Q1 value on record as pressure from investors and the search for innovation continues to push corporates towards M&A. PE activity also rebounded to pre-financial crash highs.”

In addition, the report reveals that 14 deals which breached the $10bn mark have been recorded so far this year, including the $67.9bn deal between Cigna and Express Scripts and the $46.6bn transaction which will see German utility Eon acquire Innogy, a subsidiary of German energy company RWE. 

Mr Klonowski added: “Following on from the trend seen in 2017, intra-European dealmaking has once again been active across the continent in the first quarter with the top three deals all being conducted between European companies.”

Report: Global & Regional M&A Report Q1 2018

Novartis agrees AveXis acquisition

BY Richard Summerfield               

Swiss drug manufacturer Novartis AG has agreed to acquire boutique gene-therapy company AveXis Inc for $8.7bn.

The deal will see Novartis pay $218 in cash for each AveXis share held, a 72 percent premium to AveXis’s 30-day volume-weighted average stock price. The deal is expected to close in mid-2018.

“The commitment, drive and expertise of the entire AveXis team has created significant stockholder value, and we are pleased that Novartis recognizes that value in the potential of AVXS-101, our first in class manufacturing capabilities and our gene therapy pipeline, all of which serve to transform the lives of people devastated by rare and life threatening neurological diseases such as SMA, Rett syndrome and genetic ALS,” said Sean Nolan, president and chief executive of AveXis. “With worldwide reach and extensive resources, Novartis should expedite our shared vision of bringing gene therapy to these patient communities across the globe as quickly and safely as possible.”

Since Mr Narasimhan became CEO of Novartis International, the company has refocused its efforts on expanding into new areas. Focused medicines and gene therapy have become key areas for the company. Earlier this year Novartis made a $170m deal with Spark for rights to use its blindness treatment, Luxturna, outside the US.

According to a statement announcing the deal, AveXis has several ongoing clinical studies for the treatment of SMA, an inherited neurodegenerative disease caused by a defect in a single gene.

“The proposed acquisition of AveXis offers an extraordinary opportunity to transform the care of SMA. We believe AVXS-101 could create a lifetime of possibilities for the children and families impacted by this devastating condition,” said Mr Narasimhan. “The acquisition would also accelerate our strategy to pursue high-efficacy, first-in-class therapies and broaden our leadership in neuroscience. We would gain with the team at AveXis another gene therapy platform, in addition to our CAR-T platform for cancer, to advance a growing pipeline of gene therapies across therapeutic areas. We look forward on the closing of the deal to a smooth transition for AveXis employees and welcoming them to Novartis.”

Paul Hudson, chief executive of Novartis Pharmaceuticals, said: “Bringing AveXis on board would support both our ambition to be a leader in neurodegenerative diseases and our Neuroscience franchise priorities to strengthen our position in devastating pediatric neurological diseases such as SMA. We relish the opportunity to leverage our expertise, our 70-plus year heritage in neuroscience and our global footprint to help AVXS-101 benefit high-need SMA patients around the world.”

Novartis will likely fund the deal through the $13bn it recouped for selling its stake in a consumer healthcare joint venture with its partner GlaxoSmithKline. The deal, which was announced in late March, saw GSK take control of a number of products, including Sensodyne toothpaste, Panadol headache tablets, muscle gel Voltaren and Nicotinell patches.

News: Novartis bets big on gene therapy with $8.7 billion AveXis deal

Oil giants Concho and RSP merge in $9.5bn deal

BY Fraser Tennant

In a deal which creates the largest crude oil and natural gas producer from unconventional shale in the Permian Basin, Concho Resources Inc. is to acquire RSP Permian, Inc. in a transaction valued at approximately $9.5bn.

Under the terms of the definitive merger agreement, shareholders of RSP will receive 0.320 shares of Concho common stock in exchange for each share of RSP common stock. Upon closing of the transaction, Concho shareholders will own approximately 74.5 percent of the combined company and RSP shareholders will own approximately 25.5 percent.

The deal is also expected to: (i) expand Concho’s strategic portfolio in the Permian Basin to approximately 640,000 net acres; (ii) drive significant operational synergies through development optimisation, shared infrastructure and capital efficiencies, with a present value of more than $2bn; (iii) realise over $60m in annual corporate level savings; (iv) enhance Concho’s three-year annualised production growth outlook within cash flow from operations; and (v) reinforce Concho’s leadership position as the premier Permian pure-play company.

The transaction has been unanimously approved by the board of directors of each company.

“I am extremely proud of the RSP team and the high-quality position we built in the Permian Basin,” said Steve Gray, chief executive of RSP. “As RSP has grown and we have seen the resource play develop in the Permian, we have come to recognise that combining with a company with the scale, investment grade balance sheet and operational excellence of Concho will unlock even more value for shareholders. The combined company will have the vision and necessary financial strength to efficiently develop the tremendous resource potential of these assets with large-scale projects.”

Expected to be completed in the third quarter of 2018, the transaction is subject to the approval of both Concho and RSP shareholders, the satisfaction of certain regulatory approvals and other customary closing conditions. Upon closing, Concho’s board will be expanded to 11 directors and will include one independent member of the RSP board.

Concho will continue to be headquartered in Midland, Texas.

Tim Leach, chairman and chief executive of Concho, said: “This combination allows us to consolidate premier assets that seamlessly fold into our drilling programme, enhance our scale advantage and reinforce our leadership position in the Permian Basin, all while strengthening our platform for delivering predictable growth and returns.”

News: Oil producer Concho to buy rival RSP in Permian push

Broadcom bid for Qualcomm could be quashed

BY Richard Summerfield

According to the Committee on Foreign Investment in the United States (CFIUS), Singapore-based Broadcom Ltd’s $117bn bid for Qualcomm is a national security risk which requires a full investigation.

The decision, which was communicated in a letter to the lawyers representing the two companies from a senior US Treasury official, has complicated, and potentially jeopardised, an already contentious deal. Sending the letter is an unusual move for CFIUS, which normally opines about a transaction once it has been completed.

However, CFIUS’ recent activity reflects wider concerns over the role of Chinese acquirers in important sectors, including the technology space. The letter noted that it was important to have a well-known and trusted company “hold the dominant role that Qualcomm does in the US telecommunications infrastructure". Any loss of that competitiveness, the letter said, “would significantly impact US national security".

CFIUS also expressed concerns about the national security implications for the US if Chinese companies were able to dominate the nascent 5G market. Broadcom pledged that it would keep the US at the forefront of the 5G market in an attempt to allay the government’s concerns.

Furthermore, CFIUS believe that the merger would alter Broadcom’s relationships with foreign entities and weaken “Qualcomm’s technological leadership", which would allow Chinese companies, such as Huawei, to steal a march on their US counterparts.

“China would likely compete robustly to fill any void left by Qualcomm as a result of this hostile takeover,” said Aimen Mir, Treasury Deputy Assistant Secretary for Investment Security in the letter.

CFIUS also identified a number of other concerns surrounding the transaction, such as Broadcom’s reputation for cutting research spending and potential national security risks that could arise from exploiting or compromising Qualcomm’s assets through arrangements with “third party foreign entities”.

Despite CFIUS’ concerns, Broadcom remains optimistic that a deal can still be reached in time for a Qualcomm shareholder meeting due to be held later this month. Typically, CFIUS does not offer opinions involving purely domestic transactions. In November, Broadcom filed to redomicile to the US and is looking at ways to expedite the process.

“We are fully cooperating with CFIUS, and are absolutely committed to making the combined company a global leader in critical 5G and other technologies,” Broadcom said in a statement. “There can be no question that an American Broadcom-Qualcomm combination will provide far more resources for investments and development to that end. Entrusting this effort to a failing Qualcomm management who lacks the support of its owners, and that pays out much of its excess cash flow in fines as a result of serial lawbreaking, would not be in America’s long-term interests”.

News: U.S. sees national security risk from Broadcom's Qualcomm deal

Power and utilities M&A hit $200bn in 2017, reveals new report

BY Fraser Tennant

Mergers & acquisitions (M&A) in the power and utilities sector reached an eight-year high in 2017, seeing 516 deals with a total value of $200.2bn, according to a new report by EY.

In its ‘Power transactions and trends: 2017 review and 2018 outlook’, EY reveals that 2017 saw a 57 percent year-on-year rise in renewables deal value to $42.8b globally, with the US particularly strong – up 71 percent compared to 2016.

Indeed, renewable energy tops the growth agenda in the Americas, with US deal value reaching $102.2bn – the highest recorded level of global investment. Furthermore, networks represented $29.4bn of total Americas deal value, while $28.4bn was attributable to integrated assets, $24bn to generation and $14.2bn to renewables.

“In the Americas, 2017 was marked by three investment themes,” said Matt Rennie, EY global power & utilities transactions leader. “Network assets continued to be highly attractive to investors seeking yield in a low interest rate environment, renewable energy investment activity remained strong, driven in part by ongoing support at state level and investments in energy technology start-ups continued to gain prominence – particularly on the west coast of the US.”

The EY report also notes that investors are continuing to look to yield investments for long-term, stable returns amid low interest rates and excess capital.

“2017 was a formative year in power and utilities transactional activity,” continues Mr Rennie. “Investments in the conventional energy sector were dominated by the changing generation mix, as renewable energy continued to account for an increasing proportion of the system, and low interest rates again drove yield capital toward regulated networks.”

According to EY, last year also saw a resurgence in M&A involving independent power producers (IPP), particularly in Europe and the US, where IPP deals more than doubled in value – from $15.2bn to $33bn year-on-year. In addition, over the last two years, new energy-focused start-ups raised $746m of funding (series A and B), of which $253m was focused on energy services.

In terms of European deal value, 2017 was similar to 2016 levels, an 11 percent increase in volume to 213 deals. Renewables contributed 30 percent of total deal value, with networks accounting for 27 percent and generation 26 percent. In Asia-Pacific, renewables deal value grew 72 percent year-on-year to $13.5bn.

Mr Rennie concludes: “We also saw the new energy market continue to grow in both scale and importance. As technology companies increasingly become a mainstream contingent within the electricity system, we expect them to focus on arbitraging network peaks and to focus on the long-term needs of a decentralised future energy market.”

Report: Power transactions and trends: 2017 review and 2018 outlook