Deals involving media companies, including the bidding war for Rupert Murdoch’s Twenty-First Century Fox (FOXA.O), helped drive worldwide merger and acquisition activity to new highs in the first half of 2018, according to the latest Thomson Reuters Deals Intelligence data.
The value of deals announced globally is at $2.5 trillion year-to-date, up 64 percent compared to the same period in 2017, and the strongest year-to-date period since records began in 1980. The prior high was $2.3 trillion worth of deals announced in the comparable period of 2007.
“Companies are moving fast rather than dragging their feet,” said Hernan Cristerna, co-head of global M&A at JPMorgan Chase & Co (JPM.N).
The biggest sector boost was in proposed media M&A, which totaled $322.5 billion so far during 2018, more than six times as high as the same period last year.
The sector is poised for more consolidation, bankers said, after a federal judge gave a ringing endorsement to AT&T Inc’s (T.N) planned acquisition of Time Warner Inc TWX.N without any conditions..
While technology companies have yet to pursue any sizable deals, their entry into video subscription services may prompt media companies to bulk up in that space as well.
“The large tech platforms, such as Amazon, Netflix and Alphabet, have become very credible competitors to the media and telecom companies, and are certainly creating a lot of pressure on them,” said George Boutros, chief executive officer of boutique investment bank Qatalyst. “This was a factor in the judge’s approval of the AT&T/Time Warner deal.”
Telecommunications companies’ network upgrades to the next generation of wireless technology, known as 5G, also led to the long-awaited $26 billion combination of Sprint Corp (S.N) and T-Mobile US Inc (TMUS.O), announced in May.
Another big driver in the first half has been divestitures by large corporations.
General Electric Co (GE.N), for instance, announced a sweeping breakup plan earlier this week to divest $20 billion worth of assets from its healthcare unit and its stake in oil-services company Baker Hughes (BHGE.N).
Cash-rich private equity firms are also willing buyers. U.S. buyout group Advent recently agreed to buy General Electric’s distributed power unit for $3.25 billion while KKR & Co (KKR.N) won a deal to buy the French telecom tower operations of Altice (ATCA.AS).
“Companies are continuing to use M&A in order to evolve and grow, but at the same time divesting assets to narrow their strategic focus and channel their funds to core areas,” said Allison Schneirov, a partner who heads the New York-based mergers and acquisitions group at Skadden.
Geographically, U.S. M&A was the largest category, rising 82 percent to $1.0 trillion, the country’s strongest period for dealmaking on record. Europe also posted strong growth, with announced deals nearly doubling to $767 billion in the first half.
M&A advisers such as JP Morgan’s Cristerna said the repatriation of foreign trapped cash resulting from U.S. tax reform was positive for North America, but will likely have a negative effect on cross-border M&A.
CAUTION AHEAD
Geopolitical risks, including trade tensions, have dimmed the rest of the year’s prospects.
There were already signs in the first half that geopolitical headwinds could affect dealmaking, such as the surprise decision by U.S. President Donald Trump to block chipmaker Broadcom Ltd’s (AVGO.O) proposed takeover of Qualcomm Inc (QCOM.O) on national security grounds.
The protracted Chinese clearance for Qualcomm’s proposed $44 billion acquisition of NXP Semiconductors (NXPI.O), a deal first announced in 2016, is making some corporate boards pause on deals involving companies with businesses around the world.
Those concerns, along with worries about a stock market correction or economic downturn, may have front-loaded transactions into the first half of the year, some advisers said.
“Things can go sour at any time as we may be in the second half of the cycle,” said Ferdinand Mason, a Jones Day M&A partner in London.
