Goldman Sachs sees reshaping of industries driving M&A

NEW ORLEANS (Reuters) - Major shifts in industries ranging from semiconductors and food to beverages and pharmaceuticals will keep fueling the blistering pace of mergers and acquisitions, one of Goldman Sachs Group Inc’s top dealmakers said on Thursday.

Slideshow ( 2 images )

Gradually rising interest rates, stock market jitters amid concerns over U.S. trade policy, and new concerns about U.S. regulators moving to thwart mergers have raised questions on Wall Street on whether robust dealmaking activity will continue.

However, most transformative mergers and acquisitions are driven by industries that were static for several years and are now in the process of adjusting to changes ranging from the introduction of new technologies to demographic shifts, Goldman Sachs global M&A co-head Michael Carr told the Tulane Corporate Law Institute conference in New Orleans on Thursday.

“We are in an environment where entire industries are changing structure and that’s causing M&A to happen... Transactions beget transactions. Sometimes you need to do something because your neighbor did it, ” Carr said.

Semiconductor company managers, for example, have recognized they are in a race to gain scale, saying to themselves and rivals: “I’m either in this game or I’m a seller,” said Carr.

U.S. merger and acquisition volumes reached $389 billion so far this year, compared with $236.5 billion in the same period a year ago, as more mega deals were announced, according to Thomson Reuters data, including U.S. health insurer Cigna Corp’s $52 billion agreement to buy pharmacy benefits manager Express Scripts Holding Co and Keurig Green Mountain’s more than $21 billion deal to combine with soda maker Dr Pepper Snapple Group Inc.

Given the strategic reasons companies are exploring mergers, Carr downplayed the risk of rising debt financing costs and soaring corporate valuations weighing on M&A activity. However, he acknowledged that U.S. President Donald Trump’s administration has increased regulatory uncertainty for deals, especially those involving China.

“The relationship between the White house and Beijing is far from great,” Carr said.

With the Trump administration’s tax reform set, companies will have more cash to put to work. The U.S. corporate tax rate was cut to 21 percent from 35 percent at the start of the year. Also, billions of dollars will be brought back to the United States now that companies face a one-time tax on profits stock piled abroad.

“Right now this feels like a bit of a juggernaut... this is going to continue until people do stupid deals,” Carr said.

Reporting by Svea Herbst-Bayliss and Liana B. Baker in New Orleans; Editing by David Gregorio