Reality check: Just because a few of last year's biggest mergers died on the vine doesn't mean the whole M&A market is drying up -- far from it.
It's true that with the death of the Staples-Office Depot merger this week, 2015 was stripped of its title as the biggest year for dealmaking (the actual numbers vary depending on how you splice the data ). But let's not overreact. The transactions that have recently come undone were fraught with issues such as regulatory hurdles from the start. Pfizer-Allergen, Baker Hughes-Halliburton , Staples-Office Depot...how many people truly thought the odds were in the companies' favors?
There's no doubt that regulators are taking a tougher stance on mass industry consolidation, to protect consumers and the government's tax revenue. But this isn't discouraging mergers, because all the forces that drove last year's M&A wave are still out there: need for growth, cash hoards, low interest rates, shareholder activism, etc.
If you need more proof to remain a believer in M&A, consider this: In the U.S., takeover valuations have never been as high as they are now. Not even in 2015 during the deal craze.
The fact that buyers are willing to pay steep prices shows how much they feel they need these deals. On an Ebitda multiple basis, some of the most expensive transactions lately have been Comcast's takeover of DreamWorks Animation, Progressive Waste's merger with Waste Connections, Thermo Fisher's acquisition of Affymetrix, Krispy Kreme Doughtnuts' sale to coffee-chain acquirer JAB, and Abbott Laboratories' purchase of St. Jude Medical.
Plenty of deals are still getting done and the pipeline looks full. Bayer is exploring a bid for its $40 billion U.S. competitor, Monsanto, the world's largest seed company, according to a Bloomberg News scoop Thursday morning. If it comes together, this may be the largest transaction of the year so far. Sanofi has also bid for $10 billion drug developer Medivation, which is said to have multiple suitors circling it. And in the past month alone, 40 $1 billion-plus acquisitions were announced, bringing the year-to-date tally for such large deals to almost 150.
What bust? The boom phase may not even be over yet.
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That's if you look at all types of deals that bankers work on -- M&A, joint ventures, minority purchases, spinoffs, buybacks. Of the $4.6 trillion of those deals that were formally announced in 2015, already $482 billion worth has been terminated. However, if you narrow the data parameters to just M&A transactions, 2015 still holds the record, with about $3.6 trillion. I'm also just splitting hairs here.
Technically a 2014 deal, based on when it was announced.
In the case of Staples, it's difficult to understand why the government blocked it. But it wasn't a surprise that it did. Regulators seem to be living in the past when it comes to their views on the competitive landscape of the office-supplies market.
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