Global M&A drops in third quarter, companies wary of overpaying

Fri Sep 30, 2016 7:57am EDT
 
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By Lauren Hirsch and Greg Roumeliotis

(Reuters) - The value of announced mergers and acquisitions (M&A) worldwide fell 27 percent year-on-year to $753 billion in the third quarter of 2016, as apprehension among corporate executives about overpaying prevented a repeat of last year's deal-making frenzy.

The preliminary Thomson Reuters M&A data shows the euphoria that drove merger mania in 2015 has subsided. While M&A activity remains robust, dealmakers said companies are being more selective in their decisions to do deals.

"With price-to-earnings multiples at historic highs, deals are more likely to happen when there is lower growth in a sector, high potential for synergies, and potential acquirers enjoy a healthy stock price," said Paul Parker, chairman of global M&A at Goldman Sachs Group Inc GS.N.

The stock market is hovering at record highs, while the S&P 500 Index's price-to-earnings ratio is at its highest level since the 2008 financial crisis. Combined with uncertainty over the U.S. Federal Reserve's policy on interest rates, companies have become more cautious when it comes to M&A.

"It does get down to high prices. I think most of last year and the two years prior, even if it was priced high it was OK... Now, it had better be for a good growth profile," said Marc-Anthony Hourihan, co-head of M&A for the Americas at UBS Group AG UBSG.S.

This year's largest deal so far was clinched in the third quarter; German drug and crop chemical maker Bayer AG's BAYGn.DE $66 billion takeover of U.S. seeds company Monsanto Co MON.N is also the biggest all-cash deal on record.

Some of the other big deals this quarter included Enbridge Inc's ENB.TO $28 billion acquisition of Spectra Energy Corp SE.N to create the largest North American energy infrastructure company, and Softbank Group Corp's 9984.T $32 billion acquisition of British semiconductor maker ARM Holdings Plc.

"The strategic consolidation activity occurring has resulted in many CEOs and boards across sectors saying 'I don’t want to be left out, I don’t want to be the last mover, because then there will be nothing left to do and I may be disadvantaged'," said Patrick Ramsey, co-head of global M&A, Bank of America Corp BAC.N.   Continued...

 
The logo of Bayer AG is pictured at the Bayer Healthcare subgroup production plant in Wuppertal, Germany February 24, 2014. REUTERS/Ina Fassbender/File Photo