Deals

Tara Lachapelle is a Bloomberg Gadfly columnist covering deals. She previously wrote an M&A column for Bloomberg News.

One of the biggest themes this year in M&A has been China's binge on cross-border deals -- not to mention its spotty success in getting those transactions across the finish line. Now, as we close the books on the third quarter, we're seeing the effect this is having on Wall Street's top advisers and the league tables they obsess over.

Goldman Sachs and the other go-to bankers in the bulge bracket are each taking a slightly smaller slice  of the global pie as Chinese suitors turn to local brokerages to pursue their lofty acquisition ambitions: 

M&A Heavyweights
While these are far and away the leading deal advisers, they have lost a smidgen of market share:
Source: Bloomberg
Data include M&A, minority purchases, private equity investments, spinoffs and other pending or completed deals.

Three of China's mainland firms have climbed to within the top 30 of the M&A league tables. Three years ago, none held a spot there.

One of them, China International Capital Corp., is No. 14 with about a 5 percent share of global deal volume. It was one of the advisers used by ChemChina, the state-owned company that's seeking approval for its $46 billion takeover of Swiss agrochemical maker Syngenta. (This was the largest deal of the year until Bayer and Monsanto finally inked their $66 billion merger earlier this month.) CICC is also advising on the Chinese acquisition of Irvine, California-based technology re-seller Ingram Micro for $6.1 billion, and it worked with billionaire Wang Jianlin's Dalian Wanda Group on the $3.5 billion purchase of Hollywood film maker Legendary Entertainment. 

Half of global deal dollars are still spent on North American targets, and that's a figure that barely moves year to year. But this year, more than a third of the money has flowed from Asian buyers -- the most in at least a decade and likely ever. (Check out this piece from earlier in the year in which we explored the trend further with some telling charts.)

Let's Make a Deal
The merger wave that began in 2014 crested last year.
Source: Bloomberg
Data include M&A, minority purchases, private equity investments, spinoffs and other pending or completed deals.

Global deal volume stands at about $2.4 trillion, and it's unlikely to reach last year's $3.98 trillion total or possibly even the $3.36 trillion struck in 2014. The good news is that some big mergers from last year that spilled over into this year are finally getting done (or closer to).  Just this week Anheuser-Busch InBev's $103 billion takeover of SABMiller won enough support from the target company's shareholders to seal the deal nearly a year after it was announced. Some analysts are already speculating that the Budweiser parent will buy Coca-Cola next, which is emblematic of this M&A environment. 

It may feel less frenzied, but you can still count on two hands the number of transactions over $10 billion that were announced this quarter, and acquirers continue to pay historically steep prices. That, in part, comes back to China, whose buyers have driven up asset values in certain industries. Marriott, for example, was forced to sweeten its deal for Starwood Hotels by more than $1 billion after an investor group led by China's Anbang Insurance made a surprise counteroffer. Soon after, Anbang backed out just as unexpectedly.

A Pretty Penny
Valuations for U.S.-based takeover targets remain elevated even as buying activity slows some:
Source: Bloomberg
Data include pending and completed acquisitions of U.S. companies. Multiples are based on trailing 12-month financials.

Pricey acquisitions have led to a continued surge in goodwill on the balance sheets of U.S. buyers. Goodwill is the amount they pay above a target company's net assets, and too much of it can be a sign that the buyer overpaid and may need to eventually make a writedown. For members of the S&P 500, goodwill has hit a new record of $2.8 trillion. 

Road to Hell is Paved With Goodwill
Writedowns have plagued some big mergers in the past. Are today's acquirers overpaying for deals that will come back to bite them?
Source: Bloomberg

As we move into the final quarter of 2016, expect fewer large transactions out of China and probably even a pullback in global dealmaking overall as CEOs wait to see who Americans put in the White House. Major corporations are still under pressure to find ways to grow, but at what cost? I've said it before but the high valuations and resulting surge in debt and goodwill means that some acquirers should probably turn their attention to deal integration instead of searching for their next big purchase.

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

  1. These firms may fuss over the precise figures since there are different ways to calculate deal prices and varying types of M&A transactions, but the trend remains the same. 

  2. Goldman Sachs and other banks are planning to cut a ton of jobs in Asia amid the increasing competition for deals there, among other challenges. But Gadfly's Nisha Gopalan says Goldman just might find its decision was short-sighted.

To contact the author of this story:
Tara Lachapelle in New York at tlachapelle@bloomberg.net

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