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

BNP humbled by US penalties

BY Matt Atkins

The long arm of the law caught up with BNP Paribas (BNPP) this week, as it was slapped with a $9bn fine by US authorities.

On 30 June, France's largest bank pleaded guilty to criminal charges related to allegations it breached US sanction laws between 2004 and 2012. The heavy financial penalty is the least of BNPP's worries, however – the bank has also been banned for 12 months from conducting certain US dollar transactions, a vital part of its global business. The temporary ban is expected to trigger a client exodus, and how the bank will staunch the flow is unclear.

Such strict penalties were warranted, say authorities, by BNPP's persistent violations, which continued even after US officials warned the bank of its obligations. BNPP failed to heed calls to police illicit money flows which saw it act as a "central bank" for the Sudan – a hotbed of militant activity and human rights abuses.

The bank admitted to establishing elaborate payment structures for its Sudanese clients, routing transactions through satellite banks to disguise their origin. Internal bank memos showed that BNP officials were aware of the humanitarian crisis in Sudan and the ties of its government with al Qaeda founder Osama bin Laden, but found the commercial draw of the country too great a temptation to resist.

The French bank also evaded sanctions against entities in Iran and Cuba, stripping information from wire transfers so they could pass through the US system without raising suspicion. BNPP's illicit Iranian transactions were carried out on behalf of its clients, including a petroleum firm based in Dubai that was a front for an Iranian petroleum company.

The penalties laid on the French financial institution are far grater than those faced by Credit Suisse earlier in the year, when it admitted aiding US clients evade taxes. "We deeply regret the past misconduct that led to this settlement," said BNP Chief Executive Officer Jean-Laurent Bonnafe. "We have announced today a comprehensive plan to strengthen our internal controls and processes."

No individuals at the bank have yet been charged. However, US authorities have not closed the case and BNPP can expect more fallout in the coming days and weeks.

News: BNP Paribas to pay $9bn to settle sanctions violations

US banks face new regime

On 18 February 2014, the Board of Governors of the Federal Reserve System approved a final rule implementing certain of the ‘enhanced prudential standards’ mandated by Section 165 of the Dodd-Frank Act. The Final Rule applies the enhanced prudential standards to US bank holding companies with $50bn or more in total consolidated assets and the US banking presence of foreign banking organisations (FBOs). The Final Rule is certainly an important new regulation for large US banking organisations. But it also represents a significant development for non-US banking organisations that have operations in the US.

FW spoke to Jeff Berman at Clifford Chance, Robin Maxwell at Linklaters and Brian D. Christiansen at Skadden, Arps, Slate, Meagher & Flom, about the new regime.

TalkingPoint: Enhanced prudential standards for banks in the US

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

Infrastructure spending to soar, shift eastwards

BY Matt Atkins

According to new PwC research, global spending on infrastructure and capital projects is set to rocket, hitting $9 trillion by 2025, up from $4 trillion in 2012. The focus on spending will also shift from West to East, says the new report 'Capital project and infrastructure spending: Outlook to 2025'.

The majority of growth is expected to come from the emerging economies. China, which became the world's top spender on capital and infrastructure in 2009, will be a primary driver. “Emerging markets, especially China and other countries in Asia, without the burden of recovering from a financial crisis, will see much faster growth in infrastructure spending,” said Richard Abadie, global capital projects and infrastructure leader at PwC.

Developing economies currently account for nearly half of all infrastructure spending, and while mature markets will continue to grow, they will see their infrastructure spending shrink from nearly half of the global total today to about one-third by 2025.

Underlying this shift is accelerating urbanisation in many developing countries, which will result in spending growth in sectors such as water, power and transportation. Growing per capita income in emerging markets will also mean a larger middle class that will translate into infrastructure for manufacturing sectors that provide the raw materials for consumer goods and for more and better roads. However, though emerging economies represent the biggest opportunities going forward, CEOs are still apprehensive about the potential for slowdown in these regions. While emerging economies represent the biggest opportunities for infrastructure development and investment, CEOs worry almost as much about a slowdown in the emerging economies as they do about sluggish growth in the advanced economies.

Achieving this predicted growth decade will depend on whether emerging markets can provide the proper conditions for infrastructure development.

Besides the need for available capital, growth markets will need to reduce investor risk by establishing robust governance, a consistent regulatory framework, and political stability. Developing economies must also invest in training highly skilled and low-to-medium skilled workers to support design and construction activities.

Report: Capital project and infrastructure spending: Outlook to 2025