Year of the mega deal unlikely to be repeated

Tue Dec 22, 2015 4:52pm EST
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By Greg Roumeliotis and Pamela Barbaglia

NEW YORK/LONDON (Reuters) - Dealmakers celebrating a record year for mergers and acquisitions (M&A) that was bolstered by mega deals are pinning their hopes on a larger number of smaller deals to fuel consolidation in 2016.

While the number of announced deals globally declined from 2014 by 2.1 percent to 39,687, deal volume rose 40.8 percent to a record $4.6 trillion (3.09 trillion), according to preliminary Thomson Reuters data, as big companies pursued their dream matches.

Most of the obvious mega deals have been explored already, investment bankers and lawyers said. But the number of transactions could increase next year as newly merged companies sell non-core assets and smaller companies consider tie-ups to stay competitive, they noted.

"While the absolute dollar value of deals could very well decline in 2016, we expect the number of deals to increase year-on-year as the market broadens and we see more mid-sized transactions," said Gary Posternack, global head of M&A at Barclays Plc (BARC.L: Quote).

The number of deals in 2015 that exceeded $30 billion in value was 18; together, they made up a quarter of the year's total volume. This compares with seven deals worth more than $30 billion in 2014, and one in 2013.

This year's mega deals included many with long-expected operational efficiencies, such as brewer Anheuser-Busch Inbev SA's $106 billion acquisition of SABMiller Plc SAB.L, and oil major Royal Dutch Shell Plc's (RDSa.L: Quote) $70 billion purchase of BG Group Plc BG.L.

Financial engineering was a major factor in some deals. These included drug maker Pfizer Inc's (PFE.N: Quote) $160 billion acquisition of Allergan Plc (AGN.N: Quote), a so-called inversion that would allow Pfizer to lower its tax bill by redomiciling from the United States to Ireland.

The $120 billion merger of chemical conglomerates Dow Chemical Co (DOW.N: Quote) and DuPont (DD.N: Quote) was structured so that the subsequent spin-offs of the combined companies' divisions would be tax-free.   Continued...

The logo of Anheuser-Busch InBev is pictured outside the brewer's headquarters in Leuven, November 10, 2015.   REUTERS/Eric Vidal