How Sturdy Is the M&A Market?

Many of this year's big deals are holdovers from 2015, before the market rout.

Market turbulence hasn't put a dent in mergers and acquisitions activity. In fact, dealmaking this year is off to the strongest start since 2000.

But is M&A as sturdy as it seems? Maybe not, considering that it's being buttressed by a few large transactions that were really spillovers from 2015.

Last Call?

The M&A party may be winding down. Even though 2016 made a grand entrance, continued market volatility doesn't bode well for dealmaking.

Source: Bloomberg

Take Syngenta. At $46 billion (including net debt), it's the biggest acquisition so far this year, but one that had been in the works for a long time. Monsanto spent last year trying to buy the maker of pesticides and seeds, and was continually rebuffed. Finally this month, Syngenta agreed to sell itself to another suitor, ChemChina.

Shire's $36 billion pharmaceutical mega-merger with Baxalta was formalized in January. But Shire launched its bid back in August, just after Baxalta was spun off from Baxter International. 

Now, there's Mylan, reverting back to the takeover target it originally sought: Meda. The Swedish drug company snubbed an offer from Mylan in 2014, which then led Mylan to pursue a bid last year for another drugmaker, Perrigo. But its hostile offer for Perrigo failed, too. And when that happened, it was pretty clear that Mylan would once again be on the deal hunt and that Meda was likely still at the top of its shopping list. On Wednesday evening, the two announced a $9.9 billion merger. (And it was an eye-popping price. Read more here.)

The pharmaceutical industry -- roiled by an onslaught of patent expirations for its most profitable medicines -- generally has been supporting M&A volume the past couple years. The big drugmakers are trying to offset lost sales on older therapies by buying new ones that have already been developed by other companies' labs, since the process of creating a drug and getting it approved takes a long time and is quite costly. These companies are also merging with one another to reduce overhead expenses and taxes. 

Last year, there was a record $3.8 trillion of M&A globally. Pharma and biotech accounted for almost 12 percent of the volume. Excluding all those big drug transactions from the tally would paint a very different picture. It wouldn't have been a record,  for one. And in a potentially ominous sign, 2015's biggest LBO -- Carlyle Group's purchase of Symantec's data-storage business -- was reworked, in part because of strains in the debt market.  

Some of this year's mergers are fresh, though -- which is to say they weren't situations that were already simmering or being speculated about in 2015 and came to fruition 2016. Tyco and Johnson Controls are combining in what is the third-biggest deal so far this year at more than $25 billion. While both have been in the takeover rumor mill for some time, this specific transaction wasn't seen coming. 

Market's Downdraft

Deal activity generally tends to rise and fall with the market. Here are year-over-year changes in both:

Source: Bloomberg

Depressed oil prices are expected to finally begin to spur acquisitions, and there's also talk of more asset-manager mergers and big tie-ups in the media industry, specifically content creators such as MTV parent Viacom, AMC Networks and Scripps Interactive, which owns HGTV. So 2016 could still be busy.

That said, if you ask bankers what the single biggest driver of M&A is, they'll tell you it's CEO confidence. It took a long time for CEOs to regain it following the financial crisis and recession. Should markets continue on their shaky course, that confidence could easily crumble again. 

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

    To contact the author of this story:
    Tara Lachapelle in New York at

    To contact the editor responsible for this story:
    Beth Williams at

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