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M&A at a Glance (2013 Year-End Roundup and January 2014 Monthly Review)

January 15, 2014


M&A at a Glance - 2013 Year-End Roundup

Notwithstanding reports of a down year in M&A activity, our year-end roundup shows an increase in 2013 M&A activity when measured by total deal volume, as opposed to number of deals.  After three years of relatively consistent M&A activity, 2013 saw an 8.5% increase in global deal volume over 2012, buoyed by a 17.7% increase in U.S. volume.  Figure 1.  A sharp increase in the average value of U.S. public mergers (led by an expansion in the average value of megadeals) drove this uptick in overall activity and compensated for the decrease in the number of deals (as reported by other outlets).  Figure 2. 

Investments by U.S. companies overseas were particularly strong in 2013, increasing in volume by 33.5% over 2012 despite a 7.6% drop in global crossborder transactions.  Figure 1.  On the inbound side, Canada continued to dominate both by volume and number of deals.  China was another top 5 investor in the U.S. and while its overall investment volume is relatively small, the consistent increases over the past two years reflect China's continued interest in the U.S., and may suggest that its investment appetite has shifted to non-critical resources where regulatory hurdles are less of an impediment.  Figure 3.  In terms of M&A activity by industry, the top five U.S. target industries by volume consisted of Telecommunications, Real Estate/Property, Healthcare, Computers & Electronics and Oil & Gas.  Figure 4. 

On the U.S. public M&A front there were a few noteworthy trends in 2013:

Break fees and reverse break fees have remained fairly consistent over the last three years.  Figure 5.
The percentage of U.S. public mergers that were hostile or unsolicited remained consistent with 2012 levels, suggesting that activists continued to advocate M&A transactions at their targets without undertaking hostile M&A activity themselves.  Figure 8.
The use of go-shop provisions has continued to increase since 2011.  In particular, there has been an increase in the number of transactions with go-shops involving strategic buyers.  Figure 9.
The percentage of all U.S. public partial or all stock deals with a fixed exchange ratio declined slightly, falling to 90.0% in 2013.  Figure 10.

Overall, the increase in public U.S. merger activity and the decline in the number of hostile deals may suggest that the valuation gap has diminished.  This may point to increasing strength in the U.S. economy, which may bode well for deal activity in 2014.  We note that the consensus reporting of various media outlets and prognosticators indicate that 2014 will be an up year for M&A, and we look forward to reporting on those developments through the coming months.

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January 2014 M&A at a Glance - Monthly Review

Turning to monthly activity, December closed with relatively little movement from November.  Global and U.S. volume declined slightly, while the number of deals rose modestly.  Figure 1.  In terms of industry data, Computer & Electronics was the most active U.S. target industry by volume for the first time since March 2013.  Figure 2.  Canada continued to lead in inbound U.S. crossborder transactions, but was overtaken by Italy and Israel in outbound transactions measured by volume; Russian was in fifth place.  Figure 3. 

The average value of all U.S. public mergers and the five largest U.S. public mergers rose to their highest marks in five months.  Figure 4.  Average target break fees dropped, but average reverse break fees as a percentage of equity value continued to rise, indicating that buyers are willing to risk higher fees given the strengthening financing markets.  Figure 6.  As in November 2013, no public mergers included go-shop provisions this month, and 90% of U.S. public mergers used cash as the chosen form of consideration.  Figures 8 and 9.  At 60%, tender offers represented a larger percentage of U.S. public mergers than they had over the last twelve months.  Figure 11.  Finally, December saw a decrease in hostile or unsolicited offers following a surge the previous month.  Figure 12.

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