Global Mega Deals on the Rise

After displaying a slightly weaker performance both in 2017 and the first half of 2018, the ZEW-ZEPHYR M&A Volume per Deal Index climbed to more than 130 points in June 2018 – reaching the highest index value since October 2016. The ZEW-ZEPHYR M&A Volume per Deal Index reflects the development of mergers and acquisitions completed worldwide. This development is largely driven by a few mega deals. While the number of M&A transactions completed worldwide has been experiencing a downward trend for quite some time and amounted to a moderate 561 transactions in June 2018, the volume per deal has increased significantly. These are the findings of studies carried out by the Centre for European Economic Research (ZEW), Mannheim, on the basis of the Zephyr database of Bureau van Dijk.

In May 2018, the ZEW-ZEPHYR M&A Volume per Deal Index amounted to a mere 93 points – the lowest value since March 2014. This was followed by a turnaround of the index in the period from May to June 2018, as well as a slight increase of the twelve-month moving average, which climbed from 108 to 110 points. This improvement can be attributed to the fact that in June alone there were four transactions with a volume of more than ten billion euros. In particular, the takeover of Time Warner Inc. by the US telecommunication company AT&T and the deal between Bayer and Monsanto stood out with their enormous transaction volumes.

AT&T’s acquisition of Time Warner garnered a lot of public attention, and with a transaction volume of around 93 billion euros, was the third largest takeover ever completed worldwide. The acquisition of the US agricultural and biotechnology giant Monsanto by the German chemical and pharmaceutical company Bayer generated just as much interest, especially in Germany. With a volume of 53 billion euros, this transaction was still the fifteenth largest deal to date.

“The sentiment for very large deals has brightened significantly”

“These two mega deals exemplify the general strategy adopted by companies regarding M&A activities in the past months,” says Dr. Niklas Dürr, researcher in the ZEW Research Department “Economics of Innovation and Industrial Dynamics” and project leader for the calculation of the ZEW-ZEPHYR M&A Volume per Deal Index. After Donald Trump’s election as US President, companies initially held back on transactions and waited to see what the new government would do.

“One major contribution of the Trump administration was a tax reform that allows US firms to realise considerable tax savings. These savings together with a reduced uncertainty have now prompted companies to carry out numerous transactions that had initially been put on hold,” explains Niklas Dürr. This situation is additionally favoured by the still low interest rate level as well as the positive verdict in the AT&T and Time Warner takeover case. “The general sentiment for very large deals has brightened significantly. The premise seems to be that if the deal between Time Warner and AT&T goes through, all deals can go through,” comments Dürr.

However, the trade dispute between the USA and its partners, which runs the risk of escalating into a trade war, is having a negative impact on the economic sentiment as well as on the buying behaviour of companies. In Europe, the political relations are also far from being stable: Italy is run by a right-wing populist government, Spain by a minority government, and the Brexit negotiations are also far from being settled. “These uncertainties could dampen the willingness of companies to carry out large deals,” concludes Dürr.

About the ZEW-ZEPHYR M&A Volume per Deal Index

The ZEW-ZEPHYR M&A Volume per Deal Index is calculated monthly by ZEW and Bureau van Dijk and has been tracking the development of mergers and acquisitions completed worldwide since the beginning of 2003. The ZEW-ZEPHYR M&A Volume per Deal Index is based on the number and the volume of global mergers and acquisitions recorded in the ZEPHYR database of Bureau van Dijk. The index uses the monthly rates of change in the relation between volume and number of M&A transactions, which are combined and adjusted for volatility and inflation. If the total transaction volume is attributable to a larger number of transactions within one month, the value of the M&A Index decreases, even though the aggregate transaction value remains unchanged. As a result, the index offers a much more precise picture of the level of worldwide M&A activities than a mere observation of transaction volumes or the number of transactions.

For further information please contact:

Dr. Niklas Dürr, Phone +49 (0)621/1235-386, E-mail niklas.duerr@zew.de