With deal volume easing, global advisers are looking to new themes like environmental, social and governance criteria and strategic resets by companies seeking new markets and efficiencies.
While mergers and acquisitions activity remained strong last year, it lost ground slightly in comparison with 2018. Global M&A volume dropped from $4.11 trillion to $4.09 trillion, according to Dealogic; and global M&A revenue, after five years of growth, saw a 10.3% decline, ending the year at $25.8 billion.
M&A bankers are relying increasingly on a few megadeals to sustain revenues. Transactions above $10 billion in value accounted for nearly one-third of deal volume in 2019, the highest percentage on record, Dealogic reports. Among the largest, according to Nasdaq, were the merger of United Technologies and Raytheon, Bristol-Myers Squibb’s $74 billion acquisition of Celgene and Saudi Aramco’s purchase of a majority stake in Saudi Basic Industries Corporation for $69.1 billion.
“2019 provided evidence that the global drivers of M&A are changing, as more deals reflect strategic resets by the acquirer,” says David Renwick, head of the Investment Banking division at Absa, the South African financial services firm that took the title as Africa’s Best Investment Bank for M&A from Global Finance.
Companies are recognizing the ways in which many once-overlooked markets, such as Africa and other developing regions, are changing and offering growth, says Renwick. Another shift is in organizational models. For instance, companies that are vertically integrated but see shrinking growth opportunities are looking more closely at horizontal acquisitions. A third shift concerns ambition, or the desire of more corporates to become relevant across emerging markets. “That creates opportunities for M&A,” Renwick says.
The technology sector led the way in financial-sponsor M&A, with 651 deals totaling $209.6 billion last year, according to Dealogic. “Technology has had a very strong few years,” says Greg Peirce, head of Global M&A Advisory with UBS. “More recently, there has been a clear shift toward consolidation in the technology sector where scale has become critical. Increasingly, owners are looking at all ways to cement their market position and enhance consumer value.” The greatest growth, however, was in oil and gas, where 50 deals worth a record $56.2 billion were inked.
J.P. Morgan, which grabbed Global Finance’s top spot for M&A in North America, maintained its #1 ranking for global investment banking fees with overall share gains, according to Dealogic, with a gains in market share of 9.2% globally and 9.4% in the US, representing substantial growth over the previous year. The value of the 285 M&A deals that JPM advised on worldwide increased by 16.4% over the previous year according to Mergermarkets. In the US alone, in 2019 JPM advised on 188 M&A deals with a combined value more than 42% than the previous year.
Africa saw M&A activity grow last year in several sectors, Renwick says, notably natural resources and renewable energy. Absa was the sell-side adviser to Tata Power when it divested its 50% stake in renewable energy operator Cennergi to Exxaro Resources, a South African mining company. “Interestingly, Exxaro, a coal producer, is aggressively moving into renewable energy,” Renwick notes.
Activity has also been strong in media and technology—particularly in telecommunications, he adds. As some global telecommunications platforms have become more like utilities than growth stocks, they are divesting assets in hopes of bolstering growth.
Absa advised on the purchase by Berkshire Partners of a controlling interest in Teraco Data Environments, the largest data center platform on the African continent. “This highlights how big private equity firms are finding assets in emerging markets,” Renwick says. “It also shows the activity in the telecom and technology space.”
Along with its M&A business, Absa is working to nurture Africa’s domestic capital markets—for instance, helping Zambian companies to raise money from Zambian pension funds and insurers rather than from investors located outside the country.
“This will allow a lot of the midsize growth in Africa to be financed by a developing institutional investor base,” Renwick says. A critical first step is boosting GDP per capita, which will increase disposable income, driving interest in savings and insurance products. Another goal is to get institutions to buy equities in multiple African countries. “It’s a continual dialogue,” Renwick says.
Latin American M&A volume jumped 8.1% last year, to
$85 billion, Dealogic reports. At the top were the utility sector and the energy and transportation sectors. “Latin America as a whole, and Brazil in particular, have been recovering from a languishing M&A market over the 2015 to 2018 period,” says Bruno Amaral, partner at BTG Pactual, Global Finance’s top M&A bank for the region and the largest investment bank in Latin America. Brazil’s recovery is driven by pension and other structural economic reforms, which make the country more attractive to foreign players and financial investors. Record-low interest rates are driving local capital toward higher risk-return allocations, further improving prospects for future M&A activity, Amaral adds.
BTG’s sizable investment banking team within the region allows it to handle “transactions of all sizes with the same level of commitment and efficiency,” he says. A noteworthy transaction last year was Hapvida’s 5 billion Brazilian real ($1.3 billion in May 2019) acquisition of Grupo Sao Francisco Saude, one of the largest deals in the past few years in the active Brazilian health care M&A landscape. “Company investors received the transaction very well, triggering a massive rally of the stock price and a successful follow-on equity offering to finance the deal,” says Amaral.
UBS, which earned the nod from Global Finance as the Best M&A Bank in Asia-Pacific, provides M&A advisory throughout the region, including Hong Kong, China, Singapore, Japan, Australia, India and across Southeast Asia, says the bank’s Peirce. Last year, UBS advised China Resources Enterprise on its formation of a strategic partnership with Heineken in China, Hong Kong and Macau. “The $3.9 billion cross-border partnership transformed the competitive landscape in China’s beer sector, allowing China Resources Beer [Holdings] to strengthen its presence in the premium beer market,” says Peirce. At the same time, it provided CRB access to Heineken’s established global network.
UBS was also sole financial adviser to Philippines-based San Miguel Corporation on its $2.15 billion acquisition of an 86% stake in Holcim Philippines from LafargeHolcim, a Swiss multinational. “The deal breaks new ground, as it features a local player making a very large acquisition from an international vendor,” Peirce says. “Our long-established and broad geographic footprint in Asia-Pacific, coupled with deep sector knowledge, means we can offer clients genuine global connectivity. It has been a key differentiator for us.”
Credit Suisse Securities, this year’s winner for M&A in Western Europe, acted as financial advisor to Chevron Corporation on its acquisition of Anadarko Petroleum Corporation. The stock and cash deal, announced in April 2019, was valued at $33 billion. Credit Suisse, based in Switzerland, has approximately $783 billion in assets.
Sberbank was involved in some of the most high-profile M&A deals in Central and Eastern Europe, including a high-profile tie-up with Mail.Ru for its food delivery and ride hailing joint venture. Over the past five years, the bank’s M&A team has advised parties on more than 40 transactions, comprising a number of multi-billion high-profile domestic and cross-border deals.
In the Middle East, KAMCO Investment Company played an advisory role in the bidding process organized by the Capital Markets Authority of Kuwait for an equity stake in Boursa Kuwait in March 2019. The company had been part of a consortium appointed by the CMA to lead the privatization process. Headquartered in Kuwait, KAMCO Investment Company offers a range of services, including asset management, investment banking and brokerage.
Across all regions, knowledge of local markets, tax regimes and regulations is critical to successfully executing M&A transactions. “The most important qualities to thrive in today’s Latin America M&A market are the ability to tap into extensive local knowledge and relationships cultivated over many years,” Amaral says.
Increasingly, M&A dealmakers also “need the ability to read political tea leaves,” says David Stowell, professor of finance at Northwestern University—and not only the internal politics of client companies. “So many M&A decisions now must consider not just the economic outlook, but how politicians will think about it.”
Although not often mentioned in an M&A context, conviction is similarly important. “The M&A process can be very slow and tiring,” Renwick says. “Collectively, we need to have real conviction behind a particular opportunity to get it over the finish line.”
BEST M&A BANKS 2020
|North America||J.P. Morgan|
|Western Europe||Credit Suisse|
|Central & Eastern Europe||Sberbank|
|Latin America||BTG Pactual|
|Middle East||Kamco Invest|