M&A deal failure at highest since 2008
The value of deals that fail to complete has reached its highest level since 2008, in the latest sign that the best year for mergers and acquisitions since the financial crisis will also feature a number of high-profile failures.
Three large deals collapsed last week, adding to the list of wrecked deals and coinciding with a sharp jump in equity market volatility that sapped confidence in stocks and put a chill on the market for initial public offerings.
The biggest blow to dealmaking prospects came as US pharmaceutical group AbbVie unexpectedly dropped its support for a $55bn takeover of UK rival Shire. The sudden U-turn has undermined the prevailing belief among bankers that a US Treasury crackdown on deals that allow US companies to lower their tax obligations by moving abroad would have little impact.
So-called tax inversions have featured prominently in this year’s resurgent M&A market accounting for at least a dozen deals. But the chances of Pfizer, the US pharma company, reviving its $120bn pursuit of the UK’s AstraZeneca have been greatly diminished as a result of AbbVie’s decision, several people close to the situation recently told the Financial Times, casting doubt on the year’s biggest withdrawn deal returning.
Roy Kabla, head of technology, media and telecoms for Europe, Middle East and Africa at Nomura, said: “The companies getting hit on M&A right now are those doing heavily structured transactions, including tax-driven ones, or large-cap corporates seeking deals on the back of stable, high stock prices.”
He said: “A decline in valuations will give private equity or entrepreneurs using the leveraged finance markets a chance to be very competitive again in the M&A market or vis-à-vis the IPO alternative.”
Other deals to unravel last week included a $19bn attempt by French telecoms group Iliad to acquire a majority stake in Deutsche Telekom’s US subsidiary T-Mobile and a $27bn merger between fertiliser manufacturers Yara International of Norway and CF Industries of the US.
A total of $573bn worth of deals have been withdrawn, setting this year up to surpass the $640bn in deals that went uncompleted in 2008, according to Dealogic.
Luis Vaz Pinto, deputy head of corporate finance at Société Générale, said the market conditions meant IPO markets were going to cool but that M&A activity should continue. “I don’t think M&A will be that impacted as large corporates are still flush with cash and financial sponsors can take advantage of lower valuations.”
Stiletto-shoe maker Jimmy Choo became a rare example of a successful UK listing last week as others either dropped or delayed plans. Meanwhile, five IPOs priced in the US, raising $1.4bn.
Bruce Embley, partner at Freshfields, said: “It’s slightly unusual to have an M&A cliff coming without also seeing an adverse impact on equity capital markets. So I wonder if we look back on this moment as an anomaly or whether it is the start of something more volatile.”