2018 could be a record year for mergers, at least if the exceptional first half of the year is any indicator. According to data from the Bloomberg news agency, the transaction volume of announced mergers and acquisitions in the first half of the year amounted to USD2.1tn, a year-on-year increase of around 36 per cent. In 24 deals, the transaction volume exceeded the USD10bn mark. Projected over the year as a whole, this figure could exceed the previous record of USD4.1tn set in 2007.
According to experts, the main drivers of this development were the US tax reform, high stock valuations and robust global economic growth. This year, the largest mergers have so far been announced in the health care and media industries. Japanese pharmaceutical company Takeda announced the purchase of the Irish pharmaceutical manufacturer Shire for USD62bn. In addition, health insurer Cigna offered USD54bn for a takeover of service provider Express Scripts.
Meanwhile in the media and telecommunications industry, T-Mobile US and their competitor Sprint drew attention with a USD26bn merger deal. In addition, the US cable tv giant Comcast and the media group 21st Century Fox are currently competing for the British broadcasting group Sky. With 34 billion dollars, the highest offer here has so far come from Comcast.
Analysts eyeing merger activity with caution
However, the current bout of mergers could soon come to an end. With an annual transaction volume of more than USD2.5tn, the past few years have gone well, according to the Bloomberg calculations. However, it is this development that makes analysts sceptical as to whether and for how long this pace can be maintained.
The experts cite geopolitical risks such as the trade war between the USA and China as potential obstacles. In addition, key interest rates in the USA are continuing to rise, and there are concerns about a weakening economy and increasing regulatory uncertainties. In March, for instance, US President Donald Trump prohibited the takeover of the 140-billion-dollar Qualcomm chip group by a Singapore competitor Broadcom. The reason given was that the deal could compromise the US national security. However, the regulatory risks were somewhat mitigated by the US ruling in June that approved the USD85bn purchase of Time-Warner by AT&T despite criticism from the US government.
History also shows that very strong mergers and acquisitions activity does not necessarily have to be a positive sign. The last two times the transaction volume reached similar levels, market specialists noted, saw the dot-com bubble burst of 2001 and the financial crisis of 2007 in the following year respectively.
Prognoses are no reliable indicator for future performance.