A Blog by Jonathan Low

 

Jul 5, 2018

Fear of Silicon Valley Inspires $2.5 Trillion Merger Mania in 2018. So Far.

A mixture of hope and fear fuels demand for scale to compete. JL

Stephen Grocer reports in the New York Times:

More than $2.5 trillion in mergers were announced during the first half of the year, as fears of Silicon Valley’s growing ambitions helped drive a record run of deal-making. Four of the 10 biggest deals were struck in part to fend off competition from the largest technology companies as the value of acquisitions announced during the first six months of the year increased 61% from the same period in 2017. That has put mergers in 2018 on pace to surpass $5 trillion, which would top 2015 as the largest yearly total on record.
More than $2.5 trillion in mergers were announced during the first half of the year, as fears of Silicon Valley’s growing ambitions helped drive a record run of deal-making.
Four of the 10 biggest deals were struck in part to fend off competition from the largest technology companies as the value of acquisitions announced during the first six months of the year increased 61 percent from the same period in 2017, according to data compiled by Thomson Reuters. That has put mergers in 2018 on pace to surpass $5 trillion, which would top 2015 as the largest yearly total on record.
Even rising global trade tensions did not manage to stifle acquisitions: Deals involving companies based in different countries nearly doubled compared with the first half of last year, and accounted for more than 40 percent of all announced transactions.
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The increase in deal-making has played out against the backdrop of a healthier economic outlook in many parts of the world nearly a decade after the recession. In the United States, interest rates remain low, corporate earnings are ballooning thanks in part to tax cuts and stock prices remain near historic highs. In this environment, companies have turned to mergers and acquisitions for growth, trying to grab market share and reinvent their business models, especially as Amazon, Netflix and other tech companies increasingly push into new industries.

The rising threat from tech continues to drive big mergers

Big deals, a number of them in media and health care, have driven much of the activity. So far this year, companies have announced 36 transactions valued at $10 billion or more, according to Thomson Reuters. They combined for $950 billion in deals, or nearly 38 percent of all activity.
Competition from the tech sector has pushed the largest media firms to own both the content and the platforms on which it appears. So far this year, the value of the announced media deals has jumped to $323 billion, up nearly 440 percent from a year ago.
Comcast and Disney have waged a takeover battle for much of 21st Century Fox as their deep-pocketed Silicon Valley rivals steal viewers, ad dollars and big-name creative talents. (Apple alone has more than a dozen original series in development.)
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Last month, Comcast offered $65 billion for much of Fox’s entertainment assets after earlier bidding $30.7 billion for the British broadcaster Sky, of which Fox owns a significant portion. Disney responded by increasing its offer for the Fox assets to $71.3 billion.
A federal judge’s recent approval of AT&T’s $85.4 billion acquisition of Time Warner removed some of the regulatory uncertainty around blockbuster mergers, and could touch off more deals. Comcast waited just a day after the judge’s ruling before challenging Disney’s existing bid with its own offer.
Other industries have not been immune to tech’s encroachment. Amazon’s much-discussed entrance into health care has helped pushed heavyweights in traditionally separate spheres to combine. The pharmacy chain CVS Health announced a $69 billion merger with the health insurer Aetna late last year, and in March another health insurer, Cigna, announced a $52 billion deal for Express Scripts.
Competition with Amazon also drove one of the biggest overseas acquisitions by an American company so far this year: Walmart’s $16 billion deal for a majority stake in Flipkart, India’s leading e-commerce platform.

Cross-border deals totaled $1 trillion, despite trade tensions


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