Three sectors driving deal value
Three sectors—technology, media and telecommunications (TMT), energy, mining and utilities (EMU) and pharma, medical and biotech (PMB)—accounted for the lion’s share of US deal value in 2014, with activity driven by consolidation, strong foreign appetite for assets and tax inversions. There were 1,029 deals in the TMT sector in 2014, with a total deal value of US$302 billion, up six percent from 2013. Megadeals dominated the sector. The increase in the use of wireless devices caused a blurring of the lines between television, mobile telephony and broadband. In response, cable providers and mobile operator companies have moved to consolidate and bundle these services together.
Megadeals were also the driver in the EMU sector, which recorded 495 deals in 2014 and in which deal value more than doubled from US$139.6 billion in 2013 to US$318.1 billion. Strong appetite for midstream assets was a major contributor to the sharp rise in value, as was keen interest from foreign investors in shale gas plays. A fall in the price of oil in the final quarter also brought out buyers seeking to acquire assets at lower valuations. The 475 deals in the PMB industry last year ranked the sector as the third-largest contributor to overall deal values in the United States. PMB deal values more than doubled from US$99.5 billion in 2013 to US$232 billion. Activity was partly prompted by the need for PMB firms to replenish drug pipelines and find synergies to reduce R&D costs, but the main driver of activity in the sector was tax inversion deals, where US businesses acquire foreign companies and transfer their tax domicile to secure lower tax rates. Medtronic’s US$45.95 billion purchase of Ireland’s Covidien and Actavis’s takeover of Warner-Chilcott for US$8.4 billion were two of the high-profile tax inversion deals in PMB last year. The US Treasury did respond by introducing regulations restricting some of the advantages associated with tax inversions. The new rules have blocked companies from using cash trapped offshore to fund overseas deals without incurring tax, although it is still possible to leverage US operations and deduct the interest against US taxable income post-acquisition. “While the government has moved to restrict inversions, we believe that these will continue to get done in certain circumstances,” says White & Case partner William Dantzler.
  1. TMT was the most active sector with 1,029 deals in 2014
  2. M&A was driven by consolidation and bundling in the TMT market
  3. Energy, mining and utilities recorded the highest value in 2014 with US$318 billion worth of deals, more than double that of 2013
  4. In the pharma, medical and biotech sector, deal value rose 134 percent between 2013 and 2014, from US$100 billion to US$232 billion.