The US M&A market takes center stage
After a long hiatus, US M&A activity sparked back to life in 2014 to record its best performance in five years. Companies announced 4,795 deals worth US$1.4 trillion last year, a 22 percent increase in volume and a 57 percent rise in value on 2013 figures. US dealmaking has finally recovered since the beginning of the downturn in 2009, when there were just 2,771 deals worth US$688 billion. “M&A lawyers have lived through a difficult period since 2008, but in 2014, the M&A market has come roaring back,” says John Reiss, the Global Head of White & Case’s M&A practice. The revival has been underpinned by positive fundamentals. The US economy is expected to show growth of around 3 percent for 2014, the S&P 500 gained 11.24 percent through the year and, in December 2014, unemployment fell to 5.6 percent from 5.8 percent. This compares extremely favorably with both Europe and Asia. For example, the European Commission recently cut the Eurozone growth forecast from 1.2 percent to 0.8 percent, and the unemployment rate stands at 11.5 percent (where it has been since June). Meanwhile, 2014 witnessed China’s slowest growth in nearly a quarter of a century. Deal drivers The M&A renaissance in the United States has taken place against a backdrop of soaring values and record performance in the global M&A market as a whole, with deals totaling US$3.2 trillion. At 16,554 deals, global transaction volume in 2014 was 14 percent higher than in 2013.
In the United States, the stable economy, shareholder enthusiasm for deals and record corporate cash (standing at around US$1.6 trillion, according to Moody’s Investor Service) have laid the foundations for recovery. The return of the megadeal in the United States has served as a key pillar of the M&A rebound and suggests that US dealmakers have the conviction to pursue deals and make large, long-term strategic plays once again. Megadeal mania There were 243 megadeals in 2014 worth a total value of more than US$1 trillion, which marks an increase of 51 percent and 67 percent compared to the 161 deals worth US$652 billion in 2013 (megadeals are deals worth over US$1 billion). The spike in these high-value transactions helped to boost overall deal value for the year. “Something has changed for buyers and sellers,” Reiss says. “The buyers are through their restructurings. They have done what they can on the cost side. Now they have lean, growing business operations, and they are ready to transform through acquisitions. The thing that has changed for sellers is that buyers are now willing to meet their price expectations—and when you have enthusiastic buyers (even at high prices), you get willing sellers and a highly charged M&A market.”
Stock is an option Another indicator of the confidence that has flowed through the US M&A market in 2014 was the willingness of sellers to accept stock consideration. The use of equity to fund deals has been on the rise with the number of deals in which sellers accepted equity as part of the consideration rising to 18 percent in 2014, the highest percentage recorded in the last six years. “A substantial amount of deal consideration is paid not in the form of cash but in the form of equity, evidencing confidence in the equity of the acquirer,” says White & Case partner Gregory Pryor. Inbound on the up The growth supporting the rise in US deal activity did not go unnoticed abroad, and interest from international dealmakers in the United States was strong. The number of deals in the United States by the 10 foreign countries most active in M&A climbed from 432 in 2013 to 623 in 2014, with deal values more than trebling from US$99.1 billion to US$342.8 billion. Recovering global M&A markets and steady US growth spurred inbound investment into the United States such as German group Bayer’s US$14.2 billion takeover of Merck & Co.’s consumer care branch and Chinese multinational Lenovo’s US$2.1 billion acquisition of IBM’s x86 server business.
The thing that has changed for sellers is that buyers are now willing to meet their price expectations—and when you have enthusiastic buyers (even at high prices), you get willing sellers and a highly charged M&A market.
John Reiss, Global Head of M&A, White & Case
  1. US deal values reached a five-year high in 2014
  2. Deal volumes were up by almost a quarter compared with 2013
  3. Stable economy, record cash balances and backing from shareholders have set the foundations for a rise in M&A
  4. Megadeals are up 51 percent in volume and 67 percent in value
  5. Deals under US$1bn are up 18% in volume and 28% in value