- Goldman breaks personal best, advises on $1.4 trillion
- History suggests M&A peak may be followed by correction
There have been 37,212 deals in 2015 -- roughly one for every employee of Goldman Sachs Group Inc., the Wall Street bank that has been one of the big winners of the current merger boom.
It is a number that means 2015 is guaranteed the title -- for the next 12 months at least -- of being the record year for mergers and acquisitions, with $4.2 trillion of transactions pending or completed, according to data compiled by Bloomberg. (Deal volume for league table purposes includes M&A, stakes, joint ventures and spinoffs, though not share buybacks.)
That kind of showing has provoked questions about market peaks. With 2015 demolishing M&A records, many of which predate the financial crisis, it seems right to ask: can it possibly get better than this?
History suggests not. The two previous years to break the record for global M&A volumes, 2007 and 2002, were followed by pronounced corrections. Further, the cost of doing deals is close to an all-time high: acquirers in 2015 paid an average 11.26 times earnings before interest, tax, depreciation and amortization -- only slightly below the record multiple in 2007, while revenue multiples of 1.68 times in 2015 mark an all-time high.
“We are in the late stages of the M&A cycle but there is still room left to run,” said Gary Posternack, global head of mergers & acquisitions of Barclays Plc in a phone interview. “Next year, we will see a lower value of deals overall but probably a higher number of deals. This year has been dominated by the mega deals and it’s likely that will slow down.”
The second point is indisputably true.
There were more so-called mega-deals, those valued at $20 billion or above, in 2015 than ever before. In all, there were 17 deals at or above that value. For context, there were 35 such deals in the five years from 2010 through 2014. Such was the boom in large deals that the average size of all M&A valued at $500 million or above was $3.3 billion, up from $2.2 billion in 2014.
It has also been a year for some of the most ambitious deals ever undertaken: from Pfizer Inc.’s $183.7 billion merger with Allergan Plc -- a figure that includes net debt -- to Anheuser-Busch InBev NV $120.5 billion tie-up with SABMiller Plc (with $7.5 billion of debt included.)
But bankers remain divided over the question of whether the M&A market can continue to grow, even if the number of large deals declines.
“There has been a spasm of very large, uncontroversial deals that have either been done, or looked at and decided against. The number of that type of deals will likely fall going into next year,” said Peter Tague, global head of M&A at Citigroup Inc., “but the biggest markets are typically underpinned by a lot of mid-sized deals -- and there are plenty of those ahead.”
Whether the market slows next year or not, 2015 will be affectionately recalled at investment banker soirees for years to come. Fees for M&A bankers have skyrocketed, driven both by the surge of deals and the growing propensity of corporations to surround themselves with advisers at a time of increased shareholder scrutiny.
Goldman’s Personal Best
Among the banks, Goldman Sachs topped the league tables for the value of deals it worked on, advising on just over $1.41 trillion worth -- a record for the firm. The bank has held the pole position every year in this millennium, except for 2000 and 2009 when it ceded the post to Morgan Stanley.
Goldman was closely followed by Morgan Stanley, which advised on $1.37 trillion worth, and JPMorgan, which advised on $1.30 trillion worth, according to data compiled by Bloomberg.
John Waldron, co-head of Goldman Sachs Investment Banking Division, said the bankers review dealmaking potential on an industry-by-industry basis, looking for “specific factors that drive or limit activity.” While he posited sectors like cable as being “at or near end game in terms of large deals,” other sectors such as “consumer goods, media, natural resources or diversified industrials, still have a lot of room left to run.”
Waldron says there are a number of important sectors where consolidation is still in the game plan, so the bank has an expectation of “overall merger volumes remaining strong for the next year or two.”