Deals and IPOs

M&A fever – the coming epidemic

The rise of M&A activity
The rise of M&A activity

Following a raft of flashy first quarter M&A news, deal volumes are finally returning to pre-financial-crisis levels, according to a new report.

"The first-quarter of 2014 saw a number of M&A milestones with signs that the volume of large-cap M&A is now reaching pre-financial crisis levels," said analysts at Standard Life Investment, citing Lafarge and Holcim's $50 billion merger and Comcast and Time Warner Cable's $45 billion deal as examples.

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The investment management firm said that February saw global M&A deals worth $251 billion, the most since 2012, while transactions jumped 33 percent on year.

But the best has yet to come, Standard Life said. Deals are expected to accelerate next year on the back of higher confidence in the global economic recovery and easier accessibility to funding.

"M&A currently only represents about 2 percent of the global stock market cap, while in 1990, 2000 and 2008 the level reached 5 to 11 percent. On that basis, a doubling or tripling from current levels is possible –under the right circumstances," it said.

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Europe, Asia to join the game

While the U.S. has traditionally led the M&A space, Standard Life expects Europe, Asia and emerging markets to become key players next year.

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Lower bank financing constraints in Europe are set to boost the level of M&A deals, while debt deleveraging will also contribute as companies consider selling assets.

"European utilities divested more than $30 billion of assets last year, and indicated this will continue; many are sitting on large debt piles and need to make further asset disposals to contain costs," said Standard Life.

The firm highlighted that Asia Pacific M&A currently forms about one-third of the volume and value of global deals, up from 15-20 percent a decade ago.

M&A volume down: Pro
M&A volume down: Pro

Bullishness about economic prospects in the region will likely underpin regional deals. Thirty-nine percent of respondents in an Ernst and Young survey of 1,600 global executives in March said they expect the majority of their acquisition capital to be deployed in BRIC (Brazil, Russia, India, China) emerging markets.

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Quantity, not quality

Ernst and Young agrees that deal volumes will increase over the next year. Over 30 percent of participants in their March survey plan to pursue an acquisition within the next year. Twenty-seven percent expect to pursue deals greater than $500 million in size.

However, E&Y is quick to point out that focus in M&A will be on transformational, strategic deals that add value.

"Given that the number of companies planning acquisitions over $1 billion has more than doubled in six months alone, we can expect an increase in headline generating, high-value strategic deals in the coming year. For leading companies, quality rather than quantity will be at the heart of their M&A strategies," it said in a report last month.

This story has been updated to reflect that the value of the Comcast-Time Warner Cable deal is $45 billion.