Global M&A deals to increase over next six months despite regional imbalances, claims new report

BY Fraser Tennant

Global mergers and acquisitions (M&A) activity over the next six months is expected to increase by around 6 percent year-over-year (YOY) compared to the same period in 2018, according to Intralinks’ ‘Deal Flow Predictor’.

However, while the short-term outlook for M&A activity is positive, particularly in the Asia-Pacific (APAC) region, regional imbalances and signs of stress underpin the market’s recent growth.

Drilling down, in APAC, the number of announced M&A deals is predicted to increase by around 14 percent YOY over the next six months, within a range of 7 to 20 percent, led by the technology, media, and telecom (TMT), energy and power, and materials sectors. Furthermore, all APAC regions are showing double-digit increases in their volumes of early-stage M&A activity.

In contrast, the number of announced M&A deals in Europe, the Middle East & Africa is forecast to remain flat YOY during the six months ending Q1 2019. Among the five largest European economies, over the next six months, France, Italy and the UK are expected to show the highest growth in M&A announcements, whereas levels of M&A announcements are expected to be flat in Germany and to decline in Spain.

“Structurally, YOY growth in M&A activity in the first nine months of 2018 has exclusively been driven by the Asia Pacific region,” said Philip Whitchelo, Intralinks’ vice president of strategic business & corporate development. “The number of announced deals increased by 6 percent compared to a 7 percent decline in the rest of the world.”

In terms of North America, the number of announced M&A deals is predicted to increase by around 3 percent YOY over the next six months, led by the real estate, industrial, and materials sectors. However, in Latin America (LATAM), the number of M&A deals is predicted to decrease by around 5 percent YOY over the next six months, with Argentina highest, Brazil declining and Mexico flat.

“There are also warning signs of market stress such as rising US interest rates, declining global equity markets, overstretched M&A valuation levels and increasing protectionism against cross-border M&A deals and global trade flows,” adds Mr Whitchelo. “Taken together, these suggest that the current M&A up-cycle may be nearing its peak.”

Intralinks forecasts the number of future M&A announcements by tracking early-stage M&A activity – deals that are, on average, six months away from being publicly announced.

Report: Deal Flow Predictor

SAP to acquire Qualtrics International

BY Richard Summerfield

German enterprise software behemoth SAP is to acquire Qualtrics International Inc for $8bn just as the company was about to go public. The all-cash deal, which is expected to close in the first half of 2019, is part of SAP’s push to enhance its customer-facing business.

Qualtrics, which filed for an IPO in October, recorded a profit of $2.6m on $289.9m in revenue in 2017. The company’s 2017 revenue was up 52 percent on 2016. Qualtrics expects 2018 revenue to exceed $400m. The company’s chief executive Ryan Smith said that the proposed IPO would have valued Qualtrics at more than $6bn. Mr Smith, who co-founded the company in 2002, will continue to serve as its CEO. Following the completion of the deal, Qualtrics will become part of SAP’s Cloud Business Group. SAP, by contrast, reported revenue of more than $26bn in 2017.

SAP will fund the deal through $7.9bn of financing that it secured to cover the purchase price and acquisition-related costs for the deal, which has already been approved by both companies’ boards and Qualtrics’ shareholders.

“We continually seek out transformational opportunities – today’s announcement is exactly that,” said Bill McDermott, CEO of SAP. “Together, SAP and Qualtrics represent a new paradigm, similar to market-making shifts in personal operating systems, smart devices and social networks. SAP already touches 77 percent of the world’s transactions. When you combine our operational data with Qualtrics’ experience data, we will accelerate the XM category with an end-to-end solution with immediate global scale. For Qualtrics, this introduces a dynamic new partner with the belief, passion and scale to bring experience management to millions of customers around the world.”

“Our mission is to help organisations deliver the experiences that turn their customers into fanatics, employees into ambassadors, products into obsessions and brands into religions,” said Mr Smith. “Supported by a global team of over 95,000, SAP will help us scale faster and achieve our mission on a broader stage. This will put the XM Platform everywhere overnight. We could not be more excited to join forces with Bill and the SAP team in this once-in-a-generation opportunity to power the experience economy.”

Qualtrics had planned to raise around $495m in its IPO – around double the company’s most recent valuation. Mr Smith noted that Qualtrics’ IPO was “13 times oversubscribed” due to high investor demand. However, the sale to SAP was deemed more to be more advantageous to the company’s shareholders.

The deal for Qualtrics is the second largest acquisition in SAP’s history. The company’s 2014 purchase of travel and expense software firm Concur was valued at $8.3bn.

News: SAP snatches sentiment tracker Qualtrics from verge of IPO for $8 billion

M&A marches on

BY Richard Summerfield

Global M&A activity has continued at an impressive clip in 2018, with 15,349 completed deals worth a combined $2.4 trillion, according to Pitchbook’s 3Q 2018 M&A report. The latest quarter saw 5063 closed transactions valued at a total of $822.7bn.

Across the first three quarters of 2018, total deal count was down 12 percent year-on-year – 2017 saw 17,435 deals completed – while deal value declined 7.5 percent.

North America accounted for the highest proportion of deal value in over a decade, at 64.4 percent. The first three quarters of the year saw the region generate 8683 deals valued at $1.5 trillion. Furthermore, nine of the 10 largest deals of the year to date have targeted North American-based companies.

European activity, by contrast, has been lacklustre. According to Pitchbook, the spectre of Brexit and ongoing concerns around the outlook for international trade,have led to a subdued dealmaking environment in the region. European M&A saw 5646 transactions valued at $809.1bn, a considerable decline from the 7973 deals recorded in the first three quarters of 2017 valued at a total of $1 trillion.

“Global M&A activity remains healthy as North American dealmaking overcomes the weakness occurring in Europe, where a slowdown is underway," said Wylie Fernyhough, PE analyst at PitchBook. "Financing remains historically cheap and companies have shown an appetite for expansion via acquisitions as the economic expansion extends another year.”

Mega mergers – deals worth $5bn and above – were a notable feature of dealmaking activity in the first three quarters of the year. There were 45 mega mergers closed up to the end of Q3 and more notable mega mergers, including the $69bn merger between CVS Health and Aetna and the $50.6bn Comcast/Sky UK deal yet to close.

The private equity industry has also become increasingly influential of late. PE firms accounted for 33.3 percent of all M&A activity through the first three quarter of the year with many firms interested in sourcing deals through divestments.

The report also highlights developments in the oil & gas space where the record levels of activity recorded in 2017 fell away in the first three quarters of 2018. Oil & gas companies pursued 350 M&A deals valued at a combined $125.6bn to the end of Q3 2018, a decline of 23.6 percent and 49.1 percent respectively, from the first three quarters of 2017. There were still some notable deal closures during the period, however, with Concho Resource’s $9.5bn purchase of RSP Permain the most noteworthy in the space.

Report: 3Q M&A Report

Marketing and media M&A “resilient” in Q3 2018 despite Brexit uncertainty, says new report

BY Fraser Tennant

Despite the ongoing uncertainty induced by Brexit, mergers and acquisitions (M&A) activity in the marketing and media sectors has been “resilient” in Q3 2018, according to a report published this week by Kingston Smith.

In its ‘Mergers and acquisitions in the marketing and media sectors – Q3 2018’, the firm notes that 70 deals took place in the quarter, up from 60 in Q2 and keeping pace with the 73 recorded in Q1 2018.

Among the high-profile transactions were WPP acquiring Hirshorn-Zukerman Design Group,  Emark, Gorilla Group and 2Sale International, the acquisition of Digital Mind, Whitespace and Amicus Digital by Dentsu, and the deals by Next 15 to acquire Technical Associates Group and Viga.

“Q3 is testament to the enduring hunger of acquirers, with the deal announcements possibly lagging behind the appetite,” states the report. “Many mid-market buyers lack sufficient bandwidth to assess all the opportunities available to them and this is holding back deal completions. The quarterly uptick is welcome but the jury is out as to whether activity will continue at this level, as liquidity tends to dry up quickly once shocks impact on the system – meaning businesses may be rushing deals through before any material change in the external backdrop.”

Furthermore, digital businesses remain the most sought-after in the marketing services sector, accounting for nearly half of deals in this area (57 percent). In addition, media-tech continues to gain pace, accounting for almost a quarter of all deals (23 percent) in Q3 2018. Acquisitions in the media-tech space have been undertaken by WPP, Google and Deloitte, among others. 

Further key findings in the report include private equity (PE) portfolios proving a fertile hunting ground for mid-market buyers, and a number of marketing and media businesses thriving under PE stewardship and reaching sufficient scale to attract trade buyers. Among the key PE deals in Q3 2018 were Fishawack’s acquisition of Healthcircle and Williams Lea Tag acquiring Taylor James.

Also highlighted by the Kingston Smith report is the increasingly international nature of many of the transactions being seen.

The report concludes: “A strong quarter is encouraging and puts 2018 in line with the activity levels recorded in 2017 and 2016. What remains certain is that hungry acquirers will continue to hunt for deals.”

Report: Mergers and acquisitions in the marketing and media sectors – Q3 2018

Gastar Exploration files for Chapter 11 bankruptcy

BY Fraser Tennant

Struggling financially due to the slump in oil prices seen in the past few years, energy company Gastar Exploration has taken stock and entered into a restructuring support agreement (RSA) to be implemented via a pre-packaged Chapter 11 bankruptcy plan of reorganisation.

Houston-based Gastar has filed for bankruptcy with the support of its largest creditor and shareholder, private equity firm Ares Management LLC. While the RSA and Chapter 11 filing will clear more than $300m of Gastar’s debt, as well as provide $100m in new financing to fund the restructuring process and ongoing business operations, controlling ownership will cede to Ares.

Trading of Gastar’s common stock was suspended by the New York Stock Exchange in September due to the company’s low trading price.

“The restructuring agreement is a comprehensive plan that will ensure Gastar remains competitive in its industry,” said Jerry R. Schuyler, interim chief executive and board chairman of Gastar. “We can now set our sights on facilitating a smooth, efficient in-court restructuring while continuing to meet our obligations to our employee and vendor constituencies. I am proud of the exceptional hard work and dedication of all our employees throughout this process."

The agreed restructuring was developed following numerous attempts to find strategic alternatives – including selling the company – that would have allowed Gastar to avoid a bankruptcy filing.

Serving as Gastar’s legal counsel is Kirkland & Ellis LLP, with Opportune LLP serving as restructuring adviser. Perella Weinberg Partners LP is serving as financial adviser.

Subject to approval of the plan of reorganisation by the Bankruptcy Court for the Southern District of Texas and the satisfaction of certain conditions, Gastar expects to emerge from Chapter 11 before the end of 2018. 

News: New restructuring deal for Gastar will support prepackaged bankruptcy