Where have all the M&A mega-deals gone?
I was asked the other day whether I thought that mega-deals have disappeared for a while, because not many have been announced recently. The commentary on M&A in the press is still focussed on the Kraft / Cadbury / Hershey / etc deal that was announced back in September (here’s the original press statement from Kraft which valued Cadbury at £10.2 billion).
If you look at the past 20 years of super mega-deals (the top 20 deals of all time), you’ll find that the largest of these (which, by-the-way, all took place after 1997) do show some very strong seasonality. From the deals in our database, we noted this:
- Over one-third (35%) were announced in a January (including Pfizer / Wyeth in 2009, JP Morgan Chase / Bank One in 2004, Sanofi / Aventis also in 2004, Glaxo-Welcome / SmithKline Beecham in 2000 and Vodaphone / AirTouch in 1999)
- Almost half (45%) were announced in the first quarter of the year.
- Almost two-thirds (65%) were announced in the first half of the year.
- Four-fifths (80%) were announced in the first three quarters (January to September) of the year.
Which leaves only one-fifth (20%) for the fourth quarter of the year, split pretty evenly across all three months of that quarter.
By the way, if you look at all of the announced mega-deals over $50 billion (there’s around 40 of these), the figures are very similar, although only around a quarter were announced in a January of the year and almost half in the first third of the year — still quite significant percentages; the fourth quarter did still show only 20% of the announcements.
Of course, history is an unpredictable predictor of the present or future, but it does give us some useful guidance as there may be some interesting behavioural factors at work here. Human nature, as we know, doesn’t change very much, which is why the study of history is so critical.
Perhaps even more than in other years recently, there is a risk aversion in the markets — including at the CEO- and board-levels where acquisition and merger decisions are made. In most board rooms, the past six months have been better than was expected at the start of the year, and the recovery in the markets since March have reflected this as well (recent corrections notwithstanding). With year-end approaching, no one wants to give this back. One way to do this is to hunker down, consolidate the gains and wait to see if the recovery is sustained in the new year. Thus, despite some relative bargains in the market (based on stock prices still being well below their peaks of 2007), the conservatives sitting in the board room are probably preferring to wait before making any bold moves — or are at least sitting tight until their major competitors make the first moves.
But as the figures above show, early in the year appears to be a good time to announce a pending large deal. With almost half of these announcements being in the first quarter of the year, that’s not just chance. Start of the year = fresh strategic start for the company. Also, as most of these huge deals require external financing, there’s the likelihood that the deal will be closed before year-end and any bridge financing will be off the balance sheet at the all-important year-end when financial statements are published.
There must be other drivers at play here as well, and I’d be interested in hearing anyone else’s thoughts as to why these deals overwhelmingly are announced early in the year. There’s also the question as to whether 2010 will repeat history and see some mega-deals announced.
Intelligent Mergers 
In many companies, November is devoted to budget planning for the next year, and this would be the time frame in which the Board would commit internally to a major acquisition. Add in 2-3 months for the search and quiet negotiations, and this might explain why so many major deals become public in Q1.
Jose Tormo
Wednesday, 2 December 2009
Scott,
What constitutes a mega-deal here?
Gavin
Thursday, 3 December 2009
Gavin, thanks for asking, and I’ve changed the post above to include the definitions. Scott.
Scott Moeller
Friday, 4 December 2009