Goldman M&A Head Cites Faith in Acquirers as 2014 Deal Catalyst

Investors’ confidence in companies making acquisitions is emboldening management to execute deals, spurring a mergers and acquisitions boom, according to Michael Carr, co-head of Americas M&A at Goldman Sachs Group Inc.

Shareholders have been embracing the acquiring companies, Carr said today at the 26th annual Tulane University Corporate Law Institute in New Orleans, signaling faith in the lasting value of transactions as well as challenging the conventional wisdom that they should brace for a selloff.

Public U.S. companies worth more than $1 billion have risen an average of 5.2 percent in 2014 the day after announcing they are acquiring a target, a reversal from the 1.9 percent one-day decline buyers experienced five years ago, according to data from Goldman Sachs. Almost 75 percent of acquiring companies have gone up following deal announcements in the fourth quarter of 2013 and the first quarter this year.

“This is all about shareholder sentiment,” Carr said. “Shareholders are accepting the companies’ view of synergies and cost savings, and they’re giving a lot more credit than they did.”

There have been more than 6,500 deals announced globally in the year to date, valued at almost $650 billion, according to data compiled by Bloomberg. That’s the most volume in the first three months of the year since the first quarter of 2007, when volume reached $960 billion, the data show.

The first-quarter volume reflects a 28 percent jump from the year-earlier quarter, and a 12 percent increase from the fourth quarter of 2013.

Strategic Shift

More companies are shifting toward strategic M&A in 2014 and away from financial engineering, such as share buybacks, Carr said.

Comcast Corp.’s $45.2 billion agreement to buy Time Warner Cable Inc. was the largest announced in the first three months of the year, topping a failed hostile bid from Charter Communications Inc. Actavis Plc’s $21 billion offer for drugmaker Forest Laboratories Inc. and Facebook Inc.’s $19 billion takeover of mobile messaging service WhatsApp Inc. followed the cable combination to round out the quarter’s top three acquisitions.

This year’s deals have been motivated by “expansion of market presence and consolidation,” rather than many of 2013’s biggest takeovers, which were “clean-up trades,” Carr said.

Comcast Corp.’s buyout of the remainder of NBCUniversal from General Electric Co., and Verizon Communications Inc.’s acquisition of Verizon Wireless from Vodafone Group Plc were two 2013 deals driven by financial concerns and cheap debt, rather than “building influence in their particular industries,” Carr said.

“The character of the market feels different than a good part of 2013.”

Shareholder Sentiment

While the Standard & Poor’s 500 Index has gained more than 65 percent since September 2011, earnings growth has risen just 14 percent in the same time period, indicating the market is expecting profits to rise from deals, he said. This supports deal advisers, who must count on shareholder sentiment to propel future acquisitions, Carr said. It’s “very, very hard for M&A activity to pick up” without that optimism, he said.

Comcast’s Time Warner Cable acquisition, the largest U.S. cable deal since Comcast’s $72 billion merger with AT&T Broadband in 2001, helped propel Morgan Stanley and JPMorgan Chase & Co. to the top rankings for fees for the quarter, data compiled by Bloomberg show.

Morgan Stanley advised Time Warner Cable and JPMorgan advised Comcast, according to the press release announcing that deal. Bankers earned about $143 million on that merger, the third-largest payday for any deal since 2009, according to New York-based research firm Freeman & Co.

Morgan Stanley has advised on 58 deals this year, valued at more than $215 billion, followed by JPMorgan’s $162 billion for 59, the data show.

While Goldman Sachs landed in third place for advising on $132 billion of deals, it worked on more transactions than either bank, at 77. Citigroup Inc. and Barclays Plc rounded out the top five.

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