At M&A's Starting Gate
It's a frigid morning on Wall Street, with below-freezing temperatures and tumbling equity indexes throwing a double-dose of cold water on investors' new year cheer. And on the first Merger Monday of 2016, the deals are starting up again, albeit slowly.
Acadia Healthcare, a Tennessee operator of rehab facilities for substance abuse, is buying Priory Group of the U.K. for about $1.9 billion plus debt to add more patient beds across the pond. That's as far as big deals go so far in 2016. And you've got Canadian Oil Sands telling its shareholders not to tender their stock to Suncor Energy, whose $5 billion hostile bid (including net debt) expires later this week.
It's not quite the out-of-the-gate excitement some investors may have hoped for, but be patient because it's coming -- and by the looks of it, soon. M&A bankers said last month that while the transaction sizes may not skew quite as large in 2016, there's still likely to be a lot of activity. And Bloomberg News reported over the holiday weekend that merger talks between Shire and Baxalta are now advanced, with the potential for that $32 billion deal to be announced this week.
It took until mid-January/early February for M&A to ramp up last year. In fact, it was Shire that kicked things off, with its $5 billion takeover of rare-disease drugmaker NPS Pharmaceuticals on Jan. 12, 2015. About three weeks later, Pfizer struck a $17 billion deal with Hospira, which produces generic injectable drugs and the devices to administer them.
There's one dealmaker investors can usually count on early in the year to make things interesting, and that is Warren Buffett. Last year, it was the merger he constructed of H.J. Heinz and Kraft Foods, following his February 2013 purchase of Heinz with fellow billionaire Jorge Paulo Lemann's 3G Capital for $23 billion. And in February 2011, Buffett made a $9 billion purchase of Lubrizol.
His $37 billion acquisition of Precision Castparts that was announced in the summer hasn't closed yet. But this piece by Bloomberg's Noah Buhayar about Berkshire Hathaway's slumping stock price reminds us that another Buffett deal may not be far away.
As of Sept. 30, Buffett's conglomerate held more than $66 billion of cash, not including marketable securities. Each winter, he writes a letter to Berkshire shareholders discussing the company's investments, performance and his criteria for future acquisitions (and most recently, a lashing of bankers). Then everyone tries to guess what the next lucky target will be. Sometimes the industry he chooses even surprises us. After railroads and chemicals came food.
In December, the head of BNSF, the railroad controlled by Berkshire, said they're open to making a competing bid for Norfolk Southern, which Canadian Pacific Railway is trying to buy.
Buffett isn't one to sit idly by and watch Berkshire shares tumble. Both classes have lost 13 percent in the past 12 months, representing nearly $50 billion of market value.
After a record $3.8 trillion of mergers and acquisitions in 2015, there will be more -- even if it doesn't quite reach last year's pace. There are still too many companies lacking growth, sitting on mounds of cash and posting mediocre performance for there not to be more deals.
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