There have been 37,212 deals this year — roughly one for every employee of Goldman Sachs Group Inc, the Wall Street bank that has been one of the big winners of the current merger boom.
It is a number that means this year is guaranteed the title — for the next 12 months at least — of being the record year for mergers and acquisitions (M&A), with US$4.2 trillion of transactions pending or completed, according to data compiled by Bloomberg.
That kind of showing has provoked questions about market peaks. With this year demolishing M&A records, many of which predate the financial crisis, it seems right to ask: Can it possibly get better than this?
History suggests not. The two previous years to break the record for global M&A volumes, 2007 and 2002, were followed by pronounced corrections. Further, the cost of doing deals is close to an all-time high: Acquirers this year paid an average 11.26 times earnings before interest, tax, depreciation and amortization — only slightly below the record multiple in 2007, while revenue multiples of 1.68 times this year mark an all-time high.
“We are in the late stages of the M&A cycle, but there is still room left to run,” said Gary Posternack, global head of M&As of Barclays PLC in a phone interview. “Next year, we will see a lower value of deals overall, but probably a higher number of deals. This year has been dominated by the mega deals and it’s likely that will slow down.”
The second point is indisputably true.
There were more so-called mega-deals, those valued at US$20 billion or above, this year than ever before. In all, there were 17 deals at or above that value. For context, there were 35 such deals in the five years from 2010 through last year. Such was the boom in large deals that the average size of all M&A valued at US$500 million or above was US$3.3 billion, up from US$2.2 billion last year.
It has also been a year for some of the most ambitious deals ever undertaken; from Pfizer Inc’s US$183.7 billion merger with Allergan PLC — a figure that includes net debt — to Anheuser-Busch InBev NV’s US$120.5 billion tie-up with SABMiller PLC (with US$7.5 billion of debt included).
However, bankers remain divided over the question of whether the M&A market can continue to grow, even if the number of large deals declines.
“There has been a spasm of very large, uncontroversial deals that have either been done, or looked at and decided against. The number of that type of deals will likely fall going into next year,” Citigroup Inc global head of M&A Peter Tague said. “But the biggest markets are typically underpinned by a lot of mid-sized deals — and there are plenty of those ahead.”
Whether the market slows next year or not, this year will be affectionately recalled at investment banker soirees for years to come. Fees for M&A bankers have skyrocketed, driven both by the surge of deals and the growing propensity of corporations to surround themselves with advisers at a time of increased shareholder scrutiny.
Among the banks, Goldman Sachs topped the league tables for the value of deals it worked on, advising on just over US$1.41 trillion worth — a record for the firm. The bank has held the pole position every year in this millennium, except for 2000 and 2009 when it ceded the post to Morgan Stanley.
Goldman was closely followed by Morgan Stanley, which advised on US$1.37 trillion worth, and JPMorgan, which advised on US$1.30 trillion worth, according to data compiled by Bloomberg.
Goldman Sachs Investment Banking Division co-head John Waldron said there are a number of important sectors where consolidation is still in the game plan, so the bank has an expectation of “overall merger volumes remaining strong for the next year or two.”
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