Deals

Gillian Tan is a Bloomberg Gadfly columnist covering deals and private equity. She previously was a reporter for the Wall Street Journal. She is a qualified chartered accountant.

It wouldn't be a banner year for M&A without some superlatives to go along with it. 

As we know, there have been some $3.7 trillion of takeovers in 2015, the most on record -- and the number is even higher if you include joint ventures, spinoffs and stake sales. On top of that, there were more than 50 deals valued in excess of $10 billion (also an all-time high) and, for the first time, three different investment banks advised on more than $1 trillion of M&A transactions. Here are some other notable data points that help illustrate the year that was:

Celgene Second-Guessed: The biopharmaceutical company may wish it could go back in time. The company paid $7.2 billion in August for Receptos, valuing the maker of treatments for inflammatory bowel disease and multiple sclerosis at more than 1,500 times its trailing 12-month revenue. It's not that high revenue multiples are unusual in the drug industry: Buyers are often willing to pay up for the promise of future sales from drugs that are still in development or only beginning to generate revenue. But Celgene could have pursued a deal for Receptos back in 2013 for a fraction of the cost; instead, it backed away. Two years later, high valuations didn't deter Celgene, a theme that resonated with many companies that stretched to ensure prized assets ended up in their grasp rather than their rivals'.

Time Is Money
Celgene could have snapped up Receptos in 2013 for a fraction of what it paid this year.
Source: Bloomberg

Upping the Ante: Even against a frothy backdrop, some companies were foiled by circling counterbidders. Some examples include the bidding war that erupted for chipmaker PMC-Sierra, the one for reinsurer PartnerRe and the one that's still playing out: Pep Boys. Canadian Pacific has sweetened its offer for Norfolk Southern twice now but is still meeting opposition from the smaller railroad operator and is internalizing any fear it has about Warren Buffett's BNSF Railway making a play of its own. Executives don't like remaining stagnant while consolidation occurs, and armed with the blessing of shareholders (many acquirers saw their stocks rise on deal news), they had good reasons to keep raising the stakes in 2015. 

The Power of the Premium: As a whole, shareholders haven't had a great 2015, with the MSCI World Index down more than 3 percent and the S&P 500 about flat from where it began the year. But owners of stocks that found themselves acquired -- whether they were fund managers or moms and pops -- had plenty of reasons to celebrate. Especially sweet was single-serve coffee seller Keurig's takeover by a JAB Holding-led group, which came at a premium of about 90 percent to the stock's average price over the month leading up to the deal. That's the highest premium of any deal valued at more than $10 billion since 2011.

Paying Up
2015's largest premium for a deal over $10 billion was the biggest since 2011.
Source: Bloomberg

All in, the average takeover premium in 2015 M&A was about 31 percent, which is slightly higher than the 10-year average of 29 percent. In a year of otherwise declining returns, that extra gain is welcome.

Strategic About Deals: Buyout firms Blackstone Group and Carlyle Group may have led the pace of M&A activity by deal count with 48 and 35 deals, respectively -- but those numbers don't tell the story behind 2015's merger wave. While the firms spent a combined $62 billion on deals, the total outlay from all such financial buyers added up to less than $300 billion. That pales next to the $3.5 trillion or so that corporate acquirers (also known as strategic buyers) committed to M&A.  The real story of the year was the parade of companies -- from Pfizer to Anheuser-Busch InBev to Charter Communications -- that targeted rivals to shore up their businesses and enhance their growth prospects. Private-equity firms will be hoping to be less sidelined in 2016, with corporate carve-outs firmly on the agenda. 

Domino Effect: Nowhere was the theme of consolidation more evident than among health insurers: The top five are set to shrink to just three, with Cigna's acquisition of Anthem and Aetna's purchase of Humana. The latter deal enabled Aetna to remain independent and out of the clasps of the industry's largest player, United Healthcare. Those two deals, like many of 2015's biggest, are still awaiting regulatory approval. The antitrust hurdles reflect the likely reality that few big deals remain and that given the shrinking number of sizable companies in some industries, the domino effect might almost be played out.

Bankers Could Be Happier: On paper, it's been a standout year for bulge-bracket banks. Three of them (nearly four: Bank of America is on the cusp) have advised on more than $1 trillion of M&A transactions,  according to data compiled by Bloomberg. That's new -- but as we've noted, their fees haven't followed suit into record territory as boutiques firms have muscled in on the advisory work. So while bonuses may be great, bulge-bracket bankers are getting used to the fact that this is the new normal.

Keeping Busy
Banks advised on record levels of M&A, totals that were boosted thanks to megadeals.
Source: Bloomberg

What's Next: Some of the year's superlatives may stand the test of 2016 as well as the years, if not decades that follow. Others will crumble sooner: watch this space. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Gillian Tan in New York at gtan129@bloomberg.net

To contact the editor responsible for this story:
Beth Williams at bewilliams@bloomberg.net