M&A 2015: New highs, and a new tone

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Merger and acquisition activity reached a new high in 2015, both globally and in the United States—with large deals leading the way. Asia also reached a new record, with activity for the first time virtually tied with Europe as the second-busiest region for M&A.

By the numbers, more than 7,500 deals with a combined value of over $4.5 trillion had been announced as of this writing (Exhibit 1)—on track to exceed 2014 deal volume by 8 percent and deal value by 37 percent, and eclipsing the record of activity set in 2007. North American acquisitions accounted for more than 50 percent of global deals by value, while year-on-year growth of deal value in Asia over the first 11 months of 2015 exceeded the previous 11 months by nearly 60 percent.

But the big story in 2015 is around big deals. Megadeals—those valued at more than $10 billion—were up by nearly 130 percent by value year on year during the first 11 months of the year. Large deals, with a value between $5 billion and $10 billion, were up 24 percent, while small deals increased by about 10 percent. Announcement effects for acquirers in large deals, which went positive in 2013 for the first time in our records, dipped only slightly in 2015 as many investors continued to welcome announcements of large deals (Exhibit 2). Traditionally, such announcement effects have been a poor indicator of a deal’s eventual value. For instance, our analysis of past deals has found no correlation between share-price movement in the days after a deal is announced and a company’s excess total return to shareholders two years after a deal, when most synergies are captured.

Why do many investors continue to applaud big deals? It could be a change in the types of deals. In the past, big deals were often seen as tactics to address cost reduction and industry consolidation—and many still are. But today we also see deals where managers and boards are talking about diversification and, for the first time in a long time, about revenue—about cross-selling and creating new customer opportunities, and about transformation. Some of that has always been part of the rationale for big deals, but given continuing strong announcement effects, it may be that investors are more receptive to it. Companies may also be getting better at integration and capturing deal synergies. In our observation, the discipline, professionalism, and capabilities around integration have certainly improved.

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