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Dial 'M' for merger

Thursday, December 24, 2015 - 01:52

Dealmakers celebrating a record year for mergers and acquisitions that was bolstered by mega deals are pinning their hopes on a larger number of smaller deals to fuel consolidation in 2016. David Pollard reports.

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2015 was, literally, the year of the big deal. It gave AB Inbev much to celebrate and with its 106 billion dollar takeover of SABMiller. And many others too - M&A activity up 40 percent. To a global record of 4.6 trillion dollars. The reasons for it: simple, says CEBR's Vicky Pryce. (SOUNDBITE) (English) ECONOMIC ADVISER, CEBR, VICKY PRYCE, SAYING: "Interest rates have been very low. Yields anywhere have been very low. So the main way to get any value is through M&A activity, and that's exactly what's been happening." Value - and in the case of Pfizer, lower tax. Its acquisition of Allergan for 160 billion dollars allows it to redomicile from the US to Ireland. Dow Chemical and DuPont's 120 billion dollar merger structured to allow tax-free spin-offs. Those deals contributed to the US taking around half of worldwide M&A. But the year also saw UK deals at a 15-year high. And China helped Asia-Pacific top a one trillion dollar record of its own. Though for its own reasons too. CMC's Jasper Lawler. (SOUNDBITE) (English) CMC MARKETS ANALYST, JASPER LAWLER, SAYING: "They're increasingly going to want to see large Chinese firms more active abroad, and of course, growth is slowing in China, and so they're going to want to make up some of that deficit outside the country." 2016 is thought likely to see a larger number of smaller deals. The argument for M&A still strong. Why capital expend when cheap money and easy borrowing can buy a strategic fit that boosts a share price and extends a company's reach? But there is an argument against. (SOUNDBITE) (English) ECONOMIC ADVISER, CEBR, VICKY PRYCE, SAYING: "For the world economy overall, maybe it's not such good news. You end up not really investing in real, new things." As for cheap money: a US Fed rate hike may mean that the low-interest rate party is coming to an end. That something that could blow the froth off the merger market as it looks ahead.

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Dial 'M' for merger

Thursday, December 24, 2015 - 01:52