Number of Global Mergers and Acquisitions Increases Slightly
M&A IndexZEW-ZEPHYR M&A Volume per Deal Index Climbs to a Level of 115 Points
After experiencing a rather weak development in 2017 and for the most part of 2018, the situation regarding the number of mergers and acquisitions (M&A) completed worldwide has improved slightly. This is reflected in the development of the ZEW-ZEPHYR M&A Volume per Deal Index. The index, which depicts worldwide M&A activities in a twelve-month moving average, climbed four points to a level of 115 points between September 2018 and March 2019. The downward trend of the index thus seems to have stopped at least temporarily. This is the result of calculations conducted by the ZEW – Leibniz Centre for European Economic Research, Mannheim, on the basis of the Zephyr database of Bureau van Dijk.
The by far largest deal of 2019 to date took place between Walt Disney and 21st Century Fox in mid-March. With the 75 billion euro acquisition of the producer of global cinema and TV sensations like “Avatar” and “The Simpsons”, Walt Disney has now also become the majority shareholder of Hulu, a well-known streaming service provider in the US. This step enables the Disney corporation to make the leap into the increasingly important streaming market, where Disney will now have to assert itself against competitors like Amazon and Netflix. The European Commission took, however, a critical view of the takeover of 21st Century Fox and only approved the deal under certain conditions. Disney will, for instance, have to divest some of its European TV channels in order to avoid excessive concentration in the media market.
Two of this year’s largest takeovers involved companies in the gold mining sector. At the beginning of January, Canadian gold mine operator Barrick Gold merged with African-based Randgold Resources, a deal worth almost seven billion euros. Barrick Gold’s position as market leader in the industry was, however, short-lived, as in mid-April the US company Newmont Mining reacted to the merger of its competitors by acquiring the mining company Goldcorp for more than eight billion euros. The main reason for the two takeovers was the fact that some gold mines are slowly being depleted, making gold mining more and more expensive. By consolidating their businesses, the operators are trying to reduce their costs.
Temporary high instead of a prelude to new takeover waves
The largest takeover in Germany in 2019 was the merger of BASF subsidiary Wintershall with Deutsche Erdöl AG in May. The acquisition cost the chemical producer BASF twelve billion euros, making it the third-largest deal worldwide this year. Plans to carry out this merger had been in place since 2014, when Russian oligarch Michail Fridman acquired Deutsche Erdöl AG from the German energy supplier RWE. Negotiations proved, however, very difficult at the time due to the Ukrainian conflict, which is why the deal was not completed until 2019.
“In view of the slowing global economy, the positive development regarding worldwide M&A activities comes rather unexpectedly and should be viewed as a temporary high instead of a prelude to new takeover waves. However, developments such as digitalisation and growing social awareness of climate change are posing a challenge for companies, prompting them to set new priorities and restructure their businesses. In this regard, company mergers and takeovers can play a key role and open up paths to new possibilities,” says Dr. Niklas Dürr, researcher in ZEW’s “Economics of Innovation and Industrial Dynamics” Department and project leader for the calculation of the ZEW-ZEPHYR M&A Volume per Deal Index.
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.