November 27, 2019

Breakingviews: Merger Monday is cold comfort in longer M&A slump

by Breakingviews.

Monday is statistically the most common day for heart attacks. Bankers’ pulses would have been particularly elevated this week, with over $70 billion of deals announced worldwide. Yet the excitement will probably prove temporary. Mergers and acquisitions are in a lull compared with recent years, and a sustained pickup seems unlikely.

U.S. broker Charles Schwab on Monday unveiled an all-share deal with TD Ameritrade – worth almost $30 billion including debt, on Refinitiv data. LVMH is buying Tiffany & Co at a near-$17 billion enterprise value. Meanwhile a raft of sub-$10 billion acquisitions were announced by pharma group Novartis, ticketing group Viagogo and others.

Yet the busy day is an outlier in an otherwise depressing trend. About $3.7 trillion of deals were announced in the last 12 months – 13% lower than a year earlier, according to Refinitiv. Volumes have fallen even as stock markets reach record highs, breaking the long-term link between dealmaking and equity market performance, and suggesting that executives are less optimistic about their business than shareholders. Boston Consulting Group’s data shows they are also paying less: the average multiple of EBITDA at which companies sell fell to 13 times in the first half of 2019, down from 13.7 times in 2018.

And not all deals smack of corporate exuberance. True, LVMH is paying a rich 16.6 times EBITDA for Tiffany. But other couplings look more defensive. Stockbrokers like Charles Schwab are under pressure from low-cost upstarts. Another big upcoming deal, between Peugeot and Fiat Chrysler Automobiles, was driven by slowing auto sales and the need to build costly low-emissions engines.

It’s a tricky time for making bold strategic bets. Persistent protectionist tensions between the United States, China and Europe are making chief executives nervous. Meanwhile, international bodies such as the Organisation for Economic Co-operation and Development have been warning of weak global growth in the coming years. Add to that a U.S. presidential election next year, and any bankers expecting a sustained boom are probably guilty of wishful thinking.


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