Blockbuster deals, spurred by a need by disrupted industry leaders to hedge against new competition and facilitated by the GOP tax overhaul, have amounted to over $1.2 trillion in 2018, according to the Financial Times. Some $50 billion worth of takeovers on Wednesday brought the total number to a record-breaking level for the first quarter. (See also: Tax Cuts Prompt Biggest Merger Spree in Decades.)
Over half of the worth of acquisitions in Q1 have been in excess of $5 billion, as reported by the Financial Times. Those megadeals reflect a more than 200% increase in size over deals in the same period last year, according to Thomson Reuters. The overall level of activity represents a 67% jump over the first quarter of 2017 and about 33% more than 2007, the previous record-breaking year for M&A.
In a recent report, analysts at Morgan Stanley indicated that "political uncertainty usually doesn't make for ideal conditions for corporate M&A, especially after three consecutive years of annual M&A above $3 trillion." However, the investment firm noted that 2017 marked another year of near-record activity, while 2018 looks like it could be "even busier." The $3.2 trillion in total deals last year reflected a 15% jump from the $2.7 trillion annual average over the past decade, and not too far off from the record $3.8 trillion in 2015.
A Record Year for M&A
Recent megadeals span across industries such as pharmaceuticals, financials, media and communications. On Wednesday, news broke that Japan's top drug company, Tadeka, is weighing a $40 billion acquisition of Ireland-based competitor Shire PLC (SHPG). In oil and gas, U.S.-based Concho Resources Inc. (CXO) has agreed to buy rival RSP Permian Inc. (RSPP) for $9.5 billion including debt. Chicago-based exchange CME Group Inc. (CME) announced plans to takeover U.K. competitor Nex Group PLC for 3.9 billion euros, or about $4.8 billion.
Morgan Stanley's Susie Huang, the head of M&A for the Americas, suggested that M&A will continue to be driven by "steady tech disruption" as "companies need to constantly reassess whether they can sustain their competitiveness."
"Virtually no industry is immune to the competitive pressures emanating from digital and technology disruption," wrote the analyst.
'Growth Is Back'
A surge of transactions, including more than 20 deals worth more than $10 billion, have been supported by "an environment where growth is back" and "companies feel the pressure to justify the multiples they are trading on," said Citigroup's Alison Harding-Jones, as quoted by the Financial Times.
In Q1, Morgan Stanley (MS) beat out Goldman Sachs Group Inc. (GS) in deal making, with the former advising on $385 billion worth of deals compared to the latter's $264 billion. Morgan Stanley's pipeline of megadeals in the first three months of the year included U.S. health insurer Cigna Corp.'s (CI) $68.5 billion acquisition of pharmacy benefits manager Express Scrips and Comcast Corp.'s (CMCSA) proposed $39.8 billion takeover of European media group Sky.
The Financial Times noted that increasingly protectionist policies from the White House, including the president's unprecedented decision to block the $142 billion takeover of semiconductor manufacturer Qualcomm Inc. (QCOM) by Singapore-based Broadcom Ltd. (AVGO), could thwart future cross border mergers. (See also: Goldman: 15 Most Likely M&A Targets in 2018.)