The Sunday Business PostMarch 8, 201526 M&A Briefing

Activity set to remain robust as companies put cash to workIMAP’s Jurgis Oniunas gives his assessment of the current trends driving the global M&A market, writes Philip Connolly

The GlObAl OuTlOOkMerGers And AcquIsITIOns

Jurgis Oniunas, chairman of IMAP

Progress expected for 2015 but country outlooks differ

Growth may be nearing peak in economy and markets

Favourable conditions boost economic transformation

Latin American briefing

US briefing

African briefing

By yassine Mekki Berrada

Africa has become an obvious choice for investors, as a broad range of factors have

created favourable conditions for economic transformation in this continent. Although some Sub-Saharan countries still suffer from a lack of secu-rity and political stability, the International Monetary Fund expects Africa to become the second fastest-growing region in 2015, behind Emerging Asia.

The fast improvement of Africa’s macroeconomic performance is supported by investor-friendly regula-tory measures and startling economic, social, legal and business environment trans-formations.

Boosted by these strong fundamentals, Africa is enjoy-ing its best spell of investment banking activity. According to Capital IQ, investment banking transactions in Africa amounted to $118 billion over the 2013-2014 period, main-ly driven by M&A deals and public offerings (respectively 44 per cent and 49 per cent of total value). Over the same period, South Africa drew the lion’s share (47 per cent), followed by Nigeria (13 per cent), Morocco (9 per cent), Ivory Coast (6 per cent) and Egypt (5 per cent), in terms of transaction value. Main sec-tors targeted were energy and

mining, telecommunication and financial services.

Today, the African market is bullish with heterogeneous evolutions across the regions. Hence, the African transaction landscape is concentrated, with regional players driving the whole market.

The South African market is the most mature in Africa in terms of investment bank-ing, with 2013-2014 total deal value amounting to $55 billion - 47 per cent of Africa’s total transactions volume.

The second largest contrib-utor in terms of transaction value is Sub-Saharan Africa (Africa excluding South Africa and North Africa), with 34 per cent of Africa’s transactions during 2013 and 2014. This area is all the more impres-sive as investment banking transactions are booming with a 2009-2014 compound an-nual growth rate of 39 per cent.

The increase is mainly driv-en by Nigeria – a country with strong fundamentals and a wide range of natural resourc-es (eg, disposal of Shell’s oil wells at $5 billion) – and oth-er emerging countries which issued sovereign bonds (eg, Ivory Coast).

North Africa (Morocco, Algeria, Tunisia, Libya and Egypt) only accounts for 18 per cent of the transactions in the continent over 2013-2014, as it remains affected by the political turmoil after

the Arab Spring. However, over the same period, some major deals were completed: the acquisition of Maroc Tele-com by Etisalat in Morocco for $7.2 billion; the acquisition of Optimum Telecom Alge-ria by the FNI in Algeria for $3.1 billion; the acquisition of Egypt Oil And Gas Business by Sinopec International Pe-troleum in Egypt for $2.6 bil-lion. The largest contributor in terms of transaction value was Morocco, while 79 per cent of the strategic sponsors for this region came from the Middle East and North Africa.

Transactions in Africa were boosted these last two years by large deals and sovereign fund raising. Nevertheless, sectors’ contribution is evolving: op-erations in the field of natural resources sharply decreased in 2014 as regards to previous years, whereas for the tele-communication sector, 2013 and 2014 were record-break-ing years.

2015 is expected to remain strong, as some very large transactions were already announced, such as the acqui-sition of Pepkor by Steinhoff international at $5.7 billion. Thus, in line with the latest trends, 2015 will probably see the emergence of new sectors to boost transactions on the continent.

Yassine Mekki Berrada is a partner with Ascent Capital Partners

The current high level of activity in the mergers and acquisitions market is set to continue for a couple of years, ac-cording to one of the world’s leading advisory networks.

Jurgis Oniunas, chairman of global advisory network IMAP, believes cash-rich companies looking for deals will

continue to drive the market.“Merger and acquisition strategies are coming back

into vogue as methods to drive growth,” said Oniunas. “We are seeing high profit levels with low levels of in-vestment, so there is a lot of cash built up. At the same time at the mid cap level, we have seen that private owners have low interest rates, so they don’t have many places to invest the money they might get from a po-tential sale. It is ironic that the best investment they can see is the company they are already in. That is creating a lack of good opportunities at the mid cap level.”

Low interest rates have also contributed to the growth in buyer activity as acquisition finance remains cheap, so companies are increasingly casting their net into a global market for opportunities. “There is more focus on cross-border deals,” said Oniunas. “There are opportu-nities in emerging markets, in the US and in Europe at

a certain level, while we have also seen a lot of deals happening in Asia.”

Oniunas has also seen the overhang in pri-vate-equity firms as a driver in the market. “There is a lot of money [in private equity] that is not being put to use,” said Oniunas. “At the same time private equity groups are using the robustness of capital markets to exit through initial public of-ferings.”

According to Oniunas, the level of activity in the market is set to continue for a number of years yet. “There is enough fuel there for this to be a multi-year thing,” said Oniunas. “There are dangers in the market of course. The slowdown in China is a major issue – this country has been a major driver of growth and has shown a big drop in industrial profit-ability, while there is also over-capacity. There is also the effect of rising oil prices in the Russian market and in Latin America.”

For Oniunas, Ireland has been one of the major bright spots in Europe over the past 12 months and the trend of Irish firms – such as CRH and Smurfit Kappa – looking for international deals is set to continue.

“We have seen a number of large Irish companies starting out locally and going overseas simply because the market opportunities locally are too small,” said Oniunas. “Now some of these companies are huge mul-tinationals which have expanded by mergers and acqui-sitions. That market depends on the local opportunities to raise finance and things like tax structures.”

Internationally Oniunas has also seen a rise in val-uations across a number of sectors, something which could become an issue for private equity firms. “The rise in valuations has been very noticeable, which is based on stock markets,” said Oniunas. “It is more or less across the board – valuations are rising in terms of stra-tegic deals but private equity firms are also being forced into higher valuations. They don’t like to do that as their whole reason for being in business is to buy cheaply and sell more expensively, which is one of the reasons that they are not fully invested. The smaller the deal, the smaller the valuation, not just in absolute terms but also in terms of multiples, as there are more risks and less synergies. Also it depends on the growth of the market – I recently spoke to someone in India who laughed when they heard that we were happy to get nine times EBIT-DA on a media deal.”

By GilBerto escoBedo

The growth rate of Lat-in America’s economy plunged in 2014. How-ever, it’s expected to

experience moderate growth in 2015. The region’s consum-er expenditure is expected to increase in 2015. Caribbean economies will lag behind other countries due to their excessive reliance on tourism and remittances.

Economic growth in Lat-in America will range from 3 per cent to 4 per cent over the next year, which would support an increase in M&A activity. The respondents are notably more optimistic than other commentators: the In-ternational Monetary Fund’s (IMF) projection in October is for the economies of the re-gion (including the Caribbean) to grow by an average of 1.3 per cent in 2015.

The country-by-country breakdown is mixed, however.

Brazil, the dominant econ-omy in Latin America and the previous go-to destination for M&A and other investments, continues to battle slower economic growth, with the IMF forecasting 0.3 per cent

for 2013 compared to 2.5 per cent last year.

Mexico is benefiting from greater investor confidence after implementing sweep-ing structural reforms in its labour market, financial sys-tem, telecommunications and energy sector, all of which are aimed at enticing foreign in-vestment. The country’s en-ergy and telecommunications sectors are set to be particular beneficiaries.

The economies of Peru, Co-lombia and Bolivia are also enjoying higher growth rates. The IMF expects Peru and Co-lombia to grow by 3.6 per cent and 4.8 per cent, respective-ly, during 2015, well ahead of major international markets such as the US and Europe. While Brazil still has half of the total regional M&A market, its overall share of M&A activity has been declining in favour of countries such as Mexico and Chile.

It is projected that transac-tions in Latin America over the next year will be dominated by acquisitions. Specifical-ly, acquisitions by strategic investors are likely to be the most common type of trans-action in 2015.

Mexico’s energy reforms, which will allow private in-vestment into the sector, have taken centre stage as one of the most significant opportuni-ties, not only in Latin Amer-ica, but also among the global energy markets.

Mexico had proven oil re-serves amounting to 10.9 bil-lion barrels in 2013. Oil pro-duction was 141 million tons of oil equivalent in 2013. There have been complaints that Pe-mex does not have sufficient funds available for explora-tion and investment, owing to the high financial burden placed upon the company by the government.

Natural gas reserves to-talled 0.3 trillion cubic me-ters in 2014 and production amounted to 51.0 million tons of oil equivalent in that year. Both production and con-sumption of natural gas are steadily rising.

Together, oil and natural gas will likely remain the dom-inant energy sources until 2020, accounting for well over 80 per cent of total en-ergy consumed.

Gilberto Escobedo is with Serficor Partners in Mexico

By scott eisenBerG

The US economy wit-nessed consistent but moderate growth over the past two years.

Real GDP grew approxi-mately 2.3 per cent per year for 2013-14 (nominal GDP grew approximately 3.8 per cent per year for the past two years). While that is not very strong growth, it has been enough to substantially reduce unemployment. As recently as January 2012, the unem-ployment rate was over 8 per cent. At December 2014, the unemployment rate in the US was 5.6 per cent.

Most industries are enjoying great stability. Inflation is very low, capital is readily available and inexpensive. The industry with the biggest challenge is energy, due to the drop in oil prices. The manufacturing sector is very strong. The two largest industries in the US are automotive and housing. Both of these industries are enjoy-ing very strong results. Annual auto sales finished 2014 at a 16.9 million run rate, which is near full capacity. Real es-tate prices have increased ap-

proximately 25 per cent since January 2012.

In the financial markets, the US markets have performed very well and the Dow Jones Industrials Average and S&P 500 are at record highs. For the three-year period ended December 31, 2014, the S&P 500 generated an annual re-turn of 17.5 per cent, which is substantially higher than the returns generated by the non-US equities on an aggre-gated basis.

Deemed a safe haven, the dollar is rallying. Since the last half of 2014, the dollar has increased significantly against most currencies and approximately 20 per cent against the euro. Interest rates are modestly higher in the US as the rate on the US 10 year Treasury is 2 per cent, which is above the rate in most Eu-ropean countries and Japan.

In terms of the M&A mar-kets, activity in the US has been steadily increasing over the past couple of years. There was a spike of sales at the end of 2012 due to tax law changes. After that, there was a slight reduction in M&A activity in the lower and middle mar-

kets as many of the sellers contemplating a sale did so in 2012. But as the economy was gaining steam, the larger segment of the market wit-nessed strong growth. From 2013 to 2014, the number of transactions in excess of $100 million grew by approximate-ly 37 per cent.

For transactions under $100 million, the growth rate in the number of transactions in 2014 vs 2013 was a much more modest 11 per cent. In addition to the strong M&A market, there has also been an increase in IPOs. The in-dustries with the most M&A activity in terms of the num-ber of transactions are busi-ness services, technology and finance.

Overall, there is a very sta-ble and steady economy in the US and the financial markets have generated very good re-turns. The concern is that we may be nearing a peak and that the growth in both the economy and the markets will be very tepid.

Scott Eisenberg is the managing partner and co-founder of Am-herst Partners

There is more focus on cross-border deals

This week, more than 150 leading international dealmakers will arrive in Dublin for a major M&A conference. All are members of IMAP, an international affiliate of corporate advisors specialising in mid-market transactions. The conference, hosted by Irish finance house Key Capital, brings together senior M&A transaction advisors, corporate development officers and global investors. Here, some leading members of IMAP provide a briefing on global M&A activity

The Sunday Business PostMarch 8, 2015 M&A Briefing 27

The Global ouTlookMerGers and acquisiTions

By Michael Reeves

Britain represents the largest market for mergers and acqui-sitions (M&A) in Eu-

rope. Supported by substan-tial private equity activity in London, 2014 was the best year for the market since the economic downturn. In re-ality this upturn in M&A was driven by an increase in deal values, as overall deal volume remained largely flat.

A number of factors con-tinue to play to the strengths of the M&A market in Britain, namely low interest rates, ever increasing demand in numer-ous end-markets and greater bank support for larger trans-actions.

Last year saw numerous

high-profile transactions, with a particular focus on US buyers acquiring a num-ber of high-profile British assets. These included Wal-green Co’s $24bn acquisition of AllianceBoots Ltd from US private equity firm Kohlberg Kravis Roberts and Alcoa Inc’s $2.9bn acquisition of Firth Rixson Ltd from US private equity firm Oak Hill Partners.

The key driver for trans-actions such as these was US corporates utilising their strong balance sheets to deliv-er top-line revenues growth. In addition, they are seeking to expand their global operations at a time when British-based players in a number of sec-tors are experiencing strong growth.

An additional driver for

acquisitive groups is the po-tential for them to undertake a tax inversion, whereby they relocate their corporate headquarters to countries such as Britain where a more attractive and benign tax en-vironment exists. Whilst this factor clearly increases the appetite of buyers for British assets, the failure of Pfizer’s proposed $110bn acquisition of AstraZeneca plc and AbbVie Inc’s proposed $54bn acquisi-tion of Shire plc showed that a combination of investor, public and regulatory senti-ment can still foil tax-driven M&A deals.

A further important factor for British M&A has been the growing appetite from banks and other lenders to provide increasingly attractive debt

packages. Combined with the low interest rate envi-ronment, this trend is seeing both trade buyers and pri-vate equity investors bene-fiting from increasing bank support for strategic deals. Noticeably Britain is becom-ing an important destination for new alternative US debt funders who have recognised that there is an opportunity to replicate their recent experi-ence in the US and follow the path of US private equity firms who invest in Britain.

With Britain forecasting GDP growth of around 2.5 per cent in 2015, the potential for further M&A activity in Britain this year is clear. Mega deals such as BT Group plc’s $19bn acquisition of EE from Orange SA and Deutsche Telecom AG

will continue to be the big talking points. Other transac-tions of note in early 2015 have included Ball Corp’s $6.9bn acquisition of Rexam plc and Fairfax Financial Holdings Ltd’s $1.9bn acquisition of Brit plc, whilst Stryker’s Inc’s proposed $20bn acquisition of Smith & Nephew plc remains in the pipeline.

The strength of the US dol-lar is likely to see US buyers remain the primary drivers of inbound M&A activity in Britain. At the same time, US multinationals tend to hold large foreign reserves and it is expected that they will con-tinue to deploy this cash on acquisitions.

Michael Reeves is chief executive of Clearwater International Britain

Britain’s upturn driven by increase in deal values

By TeRO TiiliKaiNeN

Ireland’s emergence from recession is as well de-served as it was hard fought. Seven years of aus-

terity has made us – and our companies – better, stronger and faster. Corporate balance sheets are leaner. Operations are more efficient. Margins have expanded. Indeed, the fat has been cut.

Irish companies are now poised to capitalise on these developments. No longer are

they pining for the past, but rather they are planning for a very bright future. This new-found optimism is manifest-ing itself in different ways. For buyers, it has fostered a desire to grow and expand into new markets. For sellers, it means they are now operating from a position of strength and entertaining real, rather than distressed, offers. Both are no-tions many would not have even dreamt of a few short years ago.

And while this recovery is

nascent, it is broad. Compa-nies in sectors as varied as dairy, technology and en-gineering services, to name but a few, are all beginning to explore strategic alternatives for the first time in years.

This activity is being fu-elled not only by better bal-ance sheets and a recovering economy, but also by an influx of foreign capital and non-bank financing. Indeed, Irish companies may yet still face many obstacles as they enter this new economic cycle, but

it is clear that liquidity will not be one of them.

Key Capital, as the exclu-sive Irish partner of IMAP, has had a unique vantage point throughout this recovery.

Our network connects us to buyers and sellers around the world. We speak to Irish companies every day about their desires to expand into new markets, and to foreign buyers eager to invest in grow-ing Irish companies.

The interest is mutual. It is pronounced. And it is real.

This week, we intend to tell this story to the world. Key Capital has invited more than 180 of our IMAP colleagues from 30 countries to come and hear the story of the Irish re-covery for themselves at the IMAP Spring 2015 Confer-ence. And if we leave them with one message, we hope it’s this: Ireland is back, and it’s better than ever.

Tero Tiilikainen is a director in corporate finance at Key Capital, the Irish affiliate for IMAP

Recovery nascent but broad in Irish business

Great prospects for China despite economic slowdown

Outbound M&A increase highlights strategic shift

By FRaNciscO GóMez

GDP growth in the EU remains slug-gish. Sputtering investment has so

far prevented a broader and more robust acceleration of domestic demand. Amid chal-lenging global conditions, the fall in crude oil prices should provide a welcome boost to growth.

The European economy is entering its third year of re-covery, but economic growth remains stuck in low gear and output has yet to reach pre-crisis levels. Slowly ex-panding private consumption has been the only reliable source of growth since the start of the recovery almost two years ago. Investment faltered in 2014 and remains weak. Longer-term trends such as ageing and declining productivity growth may also have affected short-term in-vestment decisions by reduc-ing expected rates of return.

Against this backdrop, monetary accommodation and the shift of the fiscal stance to neutral have so far not been enough to spur growth. Headline inflation has dropped, largely on the back of lower energy prices,

which should benefit growth by boosting real incomes.

In the short run, downside risks have intensified, but new upside risks have also emerged. In a more long-run view, are we facing an era of low growth, low investment, low inflation and the occa-sional storm in global finan-cial markets? Not if the right policies are implemented now with determination.

New developments have occurred that are expected to brighten the EU’s econom-ic outlook in the near term. While all of them have poten-tial to stimulate economic ac-tivity, their impact on inflation differs. The three most prom-ising new factors are the sharp fall in oil prices, the newly announced monetary policy measures in the euro area and the EU Investment Plan (the ‘Juncker Plan’). These three factors have the potential to stimulate economic activity.

Overall, real GDP is pro-jected to grow by 1.7 per cent in the EU and by 1.3 per cent in the euro area in 2015 and to accelerate to 2.1 per cent and 1.9 per cent respectively in 2016.

There is apparently a lot of confidence and the recovery in key markets has improved

the prospects for M&A.Although return expecta-

tions and multiples for the whole of Europe fell in 2014, valuations in Northern and Western Europe had experi-enced a climb in the previ-ous two years. Deal values dropped, but the volume of transactions increased. Survey respondents believe momen-tum is building, which will push up valuations to a five-year high run. Experts agree that a complete turnaround is not to be expected, but do anticipate a better M&A mar-ket in Western Europe in 2015.

However, the diversity in economic performance is likely to persist. Following a rise in M&A valuations in 2014, a more optimistic outlook for Northern and Western Europe means that valuation multi-ples are expected to continue increasing to reach a multiple of 10.7 in 2015. The outlook for Southern Europe remains subdued. Multiples in Cen-tral and Eastern Europe slid in 2014, but respondents an-ticipate a big pickup.

Francisco Gómez works for Clear-water International Iberia

Valuation outlook hinges on outcome of policy action

Irish briefing

China briefing

Japanese briefing

European briefing

British briefing

By eduaRdO MORcillO

From a macro economic perspective, the Chi-nese economy is head-ing for a sustained pe-

riod, say of up to five years, of around 6-7 per cent GDP growth. This slowdown from previous double-digit growth is connected to a government economic restructuring plan, aimed at tackling corruption, excess capacity, questionable bank loans, and other indus-trial bubbles, all consequences of the traditional state-backed splurge in spending. In our view, such short-term moves are to be welcomed, and they shouldn’t detract from the excellent mid- to long-term prospects. The middle class is still growing by 30 to 40 mil-lion every 18 months, driven by the spread of urbanisation, especially into tier two, three and four cities.

The service industry has been completely rebooted in recent years too, with untold improvements to living stan-

dards and significant invest-ment in healthcare, education and environmental sectors. These markets are performing very strongly right now. For example, healthcare is grow-ing at more than 20 per cent.

From a business perspec-tive, while international firms continue to explore new sources of growth, the imper-ative has become profitable growth. After many years of piecemeal expansion, we have been working with clients to rethink their structures and portfolios, placing the empha-sis on what makes most sense for China. Profit drivers within the business are being better understood, resources reallo-cated accordingly, and areas of under-performance no longer tolerated. Whereas the incli-nation of the past might have been to go it alone, we expect our work on strategic part-nerships and the realisation of operational synergies to continue through 2015.

In this context, international firms continue to pursue ac-

quisitions of local companies. Interests in market access, rel-evant products and building scale remain. However, where sectors are maturing, IMAP China is increasingly work-ing on transformative deals intended to reshape industry structures and business mod-els. An increasing number of international firms will be trying models in China that aren’t deployed anywhere else in the world.

Meanwhile, we have seen an increase in disposals in China. This is not just Chi-nese business owners with-out succession plans, but also private equity firms seeking exits to trade buyers as they move into new rounds of fund raising, and both Chinese and international firms spinning off non-core businesses. We expect to work on many more disposals through 2015, con-tributing to the gradual con-solidation trend.

Eduardo Morcillo works for In-terchina

By JeFF sMiTh

In Japan, prime minister Abe’s monetary and fis-cal policies have led to a doubling of the Nikkei

stock index since he took office. He is gradually acting on structural reforms (the third of his three econom-ic policy ‘arrows’) and his party won another election last December, but the grace period for showing results in the real economy is winding down and business owners are anxious to see if the recovery can be maintained.

In March we are entering the spring wage bargaining season, which will be a test of whether prime minister Abe is able to generate the wage inflation which is key to his policies.

Meanwhile, there are obvi-ous concerns about long term domestic growth in a country where by 2060 the population is expected to shrink by one third and the portion of pop-ulation over 65 will rise to 40 per cent.

With this background, Jap-anese companies are making use of their large cash balances and the economic recovery to act on bold outbound M&A strategies and position for the long term.

Based on deal tracking by Recof Data, total M&A vol-ume in Japan again increased in 2014 by 10.3 per cent and outbound cross-border M&A increased by 11.6 per cent, forming 23.4 per cent of total M&A volume.

Perhaps the best illustra-tion of this strategic shift was spirits and beverage maker Suntory Holdings announcing 2014’s largest outbound deal, with its $16 billion acquisi-tion of US company Beam Inc. The active nature of consumer products companies in out-bound M&A was also illus-trated when leading vinegar maker Mizkan surprised the market last year with its $2.15 billion acquisition of Unile-ver’s Ragu and Bertolli pasta sauce businesses.

Other noteworthy activi-ty has been tie-ups between leading Japanese and non-Ja-pan Asian players. Trading house Itochu entered into two such major transactions with a cross shareholding invest-ment in Thailand’s Charoen Pokphand Group (CP), and then joint investment with CP Group in China’s CITIC Group.

For Japanese companies with business-to-business models, they will often make cross-border acquisitions that allow them to support their

Japanese clients that are ex-panding outside Japan, as well as allow them to build channels to serve foreign businesses.

Two transactions illustrative of this theme are the acqui-sitions this year by transpor-tation/delivery companies Kintetsu World Express and Japan Post announcing deals worth over $1 billion for com-panies based in Singapore and Australia respectively.

There is talk of overly high prices being paid by Japanese companies in cross-border deals, sometimes 20-30 per cent more than the next high-est private equity or strategic bids. However in the recent wave of activity, Japanese companies tend to be avoid-ing the non-core and trophy assets that were sought in the 1980-90s which later caused problems.

For business owners glob-ally, the strategic pressures of Japanese companies create an opportunity. If a business owner is willing to actively engage Japanese buyers and work out the benefits to both parties, then the owner may be able to optimise their busi-ness’s value in a transaction.

Jeff Smith is with Japan, Pinnacle Inc

continued on page 28

The Sunday Business PostMarch 8, 201528 M&A Briefing

Booming TMT M&A activity sees record year in 2014

Drug innovation key driver of growing pharma activity

Further M&A activity in chemicals industry in 2015

Cross-border automotive deal volume set to accelerate

Infrastructure investment offers opportunity to diversify

Investing in telecoms

Investing in pharma

Investing in chemicals

Investing in automotive

Investing in infrastructure

By Dr Heiko Frank

Many companies in different indus-tries are looking to make their mark

in the telecommunications, media and technology (TMT) sector. Most of them are part-nering with companies in this field to advance the next gen-eration of consumer service and professional models – especially for the new me-ga-trend, Industry 4.0.

TMT is a rapidly changing market, even as one segment’s growth slows down or loses market share, other key seg-ments attract attention with

newly developed modes of social networking, digital in-teraction, connectivity and new devices.

The continuously expand-ing media and IT landscape has become more and more essential. Current key trends exist in cloud computing, digital media, IT infrastruc-ture, 3D printing, wearables and ‘The Internet of Things’. The sub-segments IT security, cloud and mobile computing, big data and IT outsourcing were the main drivers in the IT segment in 2014.

In the first three quarters of 2014, the TMT industry had a total transaction volume of

nearly $500 billion – this is the highest value of trans-actions since 2001. TMT is the leading sector with 19.8 per cent of the total value of global M&A transactions. The aggregate value for technolo-gy M&A deals worldwide in the third quarter of 2014 set a new post-dotcom bubble era record of $73.7 billion, which is up 41 per cent from Q2.

Among the three sub-sec-tors, telecommunications was still the leading sector with 89 deals valued at $236.3 billion, the highest value on record, contributing 61.6 per cent of the total of TMT in the first six months of 2014.

Important drivers for the ongoing deal activity are the continuously consolidating TMT segment, followed by the high interest from foreign potential investors, divesting from non-core businesses and raising capital to expand busi-ness activities. Recent import-ant deals include Comcast’s acquisition of Time Warner Cable, AT&T’s acquisition of DirecTV, SAP’s acquisition of Concur, Vodafone’s acqui-sition of Kabel Deutschland and Facebook’s acquisition of WhatsApp for $19 billion.

North America had the highest contribution at 62 per cent to global TMT M&A activ-

ity. Last year was a record one for TMT M&A activities with deals worth more than $500 billion. Strategic and institu-tional investors feel that 2015 could be an even bigger year with growing M&A volume and an increase in deal value.

We have ongoing robust (mid-market) M&A activity, with continued interest in European technology com-panies; especially as those in Asia recognise the value of European tech assets. The fast pace of technology change and the high number of SMEs within the sector is likely to lead to further consolidation opportunities.

IMAP is a leading global M&A adviser with focus on M&A transactions in the mid-dle market.

Due to a long track record, IMAP closed globally 120 transactions in the TMT indus-try within the past five years. Supported by several industry experts, IMAP gained global experience and recognised several industry trends over previous years.

This success factor helps IMAP to be a leading M&A ad-visor within this fast growing market.

Dr Heiko Frank – IMAP in Ger-many, IMAP M&A Consultants AG

By CHristopH Bieri

The pharmaceutical in-dustry, valued around $700 billion, is in a prolonged period of

reorganisation. Deal activ-ity is high, with more than 600 transactions with a total transaction volume of $240 billion in 2014, according to IMAP’s statistics. Deal activity increased from 2013 to 2014, partly driven by cheap financ-ing, but also by high valuations of publicly traded companies and an accelerating pace of strategic realignment.

Three long-term mac-ro-drivers for transactions can be distinguished. First, the growing middle class-

es in emerging economies have created substantial new markets: China, India, Russia, Latin America and, more re-cently, Africa drive the phar-maceutical industry’s growth by volume. Being present in these markets has become an imperative for pharmaceu-tical companies with global aspirations. Particularly man-ufacturers of generic drugs, such as Sandoz (part of Novar-tis), Teva, Mylan and Abbot, which have had to perform substantial acquisitions in these regions to establish their presence.

Second, the cost of health-care expenditure has reached the sustainable maximum in mature economies. Pharma-

ceuticals generate around 10 per cent of total healthcare costs, and containment of ex-penses for drugs has become a major topic in Europe, Ja-pan and, more recently, the US. For one, various mecha-nisms have been established to ensure that generic drugs compete on price only (and not with their brands). This has led to a substantial de-crease of “branded generics’ which were common with medium-sized pharmaceu-tical companies (in our defi-nition, below US$ 5 billion sales).

On the other hand, reim-bursement prices for newly developed, proprietary drugs are set relative to their medical

value-added versus existing treatments. This demand, to-gether with increasing regula-tory scrutiny, have increased the average amount of R&D spend for each successful drug launch to €3.5 billion. This prohibits the ability that me-dium-sized companies have to establish and maintain mean-ingful R&D programmes.

Third, medical advances have been unlocking new treatment opportunities, particularly in oncology and previously untreatable, rare diseases. The pace of inno-vation has been so fast that the large, complex organisa-tion of ‘big pharma’ typically cannot keep up. The last de-cade saw the establishment

of an ‘ecosystem’ comprising small companies driving in-novation, and ‘big pharma’ as acquirers or licensees of their products.

Much of the current deal-making in the phar-maceutical industry involves large pharmaceutical com-panies willing to shell out substantial amounts, some-times hundreds of millions or even billions, to acquire small, loss-making firms with a potentially lucrative drug in development. The most extreme example for such a transaction was Gile-ad’s acquisition of Pharmasset in 2011 for $11.2 billion, for a programme which resulted in Sovaldi, the leading treatment

against hepatitis type C, a con-dition which was previously almost incurable.

Ireland, with its low cor-porate tax rate, has become a major hub for acquisitive pharmaceutical companies. Tax inversions, the movement of the tax domicile away from the US in the context of an acquisition, have been a key element of many transactions in the last two years. If Ireland manages to attract more than just letter boxes, the country may profit from the vast re-shuffling which takes place in one of the industries with the highest value generation.

Christoph Bieri works with Kurmann Partners in Switzerland

By Constantine Biller

The global chemicals industry is character-ised by ongoing cor-porate reorganisation,

active private equity invest-ment and mergers and acqui-sitions (M&A) right across all of the key geographies. The Asian market continues to of-fer growth opportunities to global players as demand in China and other Asian coun-tries remains robust. Europe remains a key location for innovation, driven in large part by ever stricter regulation and end-market sophistica-tion. Meanwhile, the US has returned as a crucial location in global production volumes

as domestic players benefit from the attractive energy pricing offered by shale gas.

M&A activity in chemicals maintained its upward tra-jectory throughout 2014. The competition from corporate and private equity bidders for the most prized assets also drove up transaction multi-ples. Many global players used their strong balance sheets and profitability to make transformational deals and deliver top-line growth. For example, Platform Speciality Products Corp acquired Arysta LifeScience Ltd from British private equity firm Permira for $3.5 billion. This followed its earlier $400 million acqui-sition of Agriphar SA.

Other significant transac-tions during the year were Albemarle Corp’s $6.2 bil-lion acquisition of Rockwood Holdings Inc, Archer Daniels Midlands Co’s $3.1 billion acquisition of Wild Flavours GmbH and INEOS AG’s $1.5 billion acquisition of the re-maining 50 per cent stake in Styrolution Group GmbH from its joint-venture part-ner BASF SE. Elsewhere, FMC Corp completed the $1.5 bil-lion acquisition of Cheminova AS and subsequently sold its alkali/soda ash business to Tronox Ltd for $1.6 billion.

There was also significant mid-market activity with corporate buyers and private equity sharing the spoils.

Fresh from its sale of Arysta LifeScience, Permira acquired CABB GmbH for $1.1 billion from Bridgepoint Capital. Japanese group Kurita Water Industries Inc acquired the APW water treatment chem-icals business of Israel Chem-icals Ltd for $316 million and Lubrizol Corp, a subsidiary of Berkshire Hathaway Inc, acquired Warwick Chemicals Ltd from British private equity firm CBPE.

US investor Strategic Value Partners sold Vestolit GmbH to Mexichem for $293 mil-lion and British private equity firm CVC Capital Partners sold Flint Group Ltd to Koch Equity Development and Goldman Sachs for $3 billion.

The appetite for new private equity investment is also ev-ident. The ongoing corporate disposal programmes present private equity firms with the opportunity to make signifi-cant investments and create platforms for further buy-and-build activity. Exam-ples of recent private equity investment into the chemi-cals industry include Rhone Capital’s $355 million acquisi-tion of ASK Chemicals GmbH from Ashland Inc and Clariant AG, Ares Management’s $431 million acquisition of Farrow & Ball Ltd and LBO France’s $359 million acquisition of Chryso SA from Materis SA.

Through 2015 there will be more M&As in the chemicals

industry as the large groups look to realign their product portfolios and geographic cov-erage towards more profitable segments. This can be seen in the active $2.8 billion pursuit of Sika AG by Compagnie de St Gobain SA. At the same time, the likes of Bayer AG, Dow Chemical Co and DSM NV will look at non-core dispos-als, while mid-sized players such as Arkema SA, Clariant AG, Croda International plc, Givaudan SA, Innospec Inc, Tessenderlo NV, Valspar Corp and WR Grace & Co remain the subject of potential bid activity.

Constantine Biller, IMAP in UK, Clearwater International UK

By katja Diepelt

In the first half of 2014 the global automotive deal value was $27.5 billion, the highest level since

2008. The global automotive deal volume increased 13 per cent in the first half of 2014 compared to 2013, while the global cross-sector M&A vol-ume increased by only 6 per cent in same time. The in-crease was mainly driven by five mega-deals with a total aggregated disclosed value of $20.9 billion. Automotive experts maintain a positive

outlook for automotive M&A activities in the future.

In spite of political uncer-tainties, economic volatility and an increased number of product recalls, the vehicle assembly sector will con-tinue to grow. In the period from 2014 to 2020 the global automotive assembly sector is expected to grow by 4 per cent. The growth will be main-ly driven by the international expansion in developing the key markets – Asia, Europe and North America.

In the first half of 2014 the components suppliers’ total

deal value climbed to $10.1 billion. Components suppliers saw deal volume rise from 100 to 117 deals in the first half of 2014, representing an increase of 17 per cent compared to the first half of 2013. The reason for the smaller deal value is caused by the fact that the supplier industry is domi-nated by small and mid-sized transactions.

The automotive industry will see an increasing number of cross-border transactions – inbound as well as out-bound. Europe will continue to be an attractive region for

M&A transactions, influenced by the current exchange rate and technology know-how, as well as the access to pre-mium automobile manufac-turers headquartered in Eu-rope. The increasing number of cross-border transactions will be also driven by ‘fol-low-the-customers strategies’ which force suppliers to move abroad.

The automotive supplier in-dustry will see both financial and trade buyers. The num-ber of financial buyers’ M&A activities increased by 39 per cent in 2014 compared to 2013.

Financial buyers are focusing on components suppliers in Asia and they further expect consolidation on the tier 3 to tier 4 level.

The automotive industry has overcome challeng-ing times in the past and it seems that the market has recovered from the econom-ic downturn. The automotive market expects to stay strong and continue M&A activities. M&A activities will be used to improve technology, grow the customer base and expand geographic presence.

M&A will play an increasing

role in the development and realisation of new technol-ogies.

IMAP as a world leading M&A adviser is mainly fo-cusing on M&A activities in the small and mid cap sector. Supported by senior advisers from the automotive indus-try, IMAP is watching several trends in the supplier indus-try. During the last five years IMAP successfully closed over 35 transactions in the compo-nents supplier industry.

Katja Diepelt works with IMAP M&A Consultants AG

By pelino ColaiaCovo

Bridges, power plants, pipelines and sea-ports: these are just a few of the structures

that fall into the ‘infrastruc-ture’ asset class. Typically, ‘infrastructure’ is defined as the basic or fundamental framework of an organisa-tion, system, city, region or country. From an investment perspective, both econom-ic infrastructure (highways, sewer systems, electricity networks, airports, etc) and social infrastructure (such as hospitals, universities, public buildings, courthouses) can be attractive.

Infrastructure investments share some characteristics with both real estate and long-term bonds. Like real estate, infrastructure invest-ments are typically long-lived (with lifetimes measured in decades or longer), and bring with them high development costs and construction risk; major facilities often require years of planning, design and permitting, while con-struction failures can lead to enormous cost overruns. Like bonds, infrastructure usually has well-defined and stable returns over a long period of time.

Traditionally, these types of facilities were constructed,

owned and managed either by governments or very large corporations, which often re-ceived a regulated licence to operate or some other form of government concession. Individual investors seldom had the ability to invest in them at all, and if they did, it was usually only by being a shareholder in a broader enterprise, such as a railway, rather than as a direct owner of a physical asset.

Over the past 20 years this has changed dramatically, and there has been an explosion of direct investment in ‘hard assets’. Partly, this has been the result of governments decid-ing to privatise some of their

facilities (eg airports, ports, railways, electricity distribu-tion networks, power stations, water and sewage facilities), and partly because of the de-velopment of new technolo-gies which governments de-cided would be better served by private investment (wind and solar powered electricity generation facilities, natural gas liquefaction and regasifi-cation plants, etc).

Today, investors in infra-structure are a large and varied group: hundreds of dedicat-ed investment funds (both publicly traded and private), pension and insurance funds, sovereign wealth funds, large corporations, family trusts and

individual investors.Investors are attracted to

infrastructure investments because they are very stable over time, and don’t fluctu-ate with the broader financial market. As a result, they have been variously characterised as ‘patient capital’ or ‘defen-sive investments’. While larger investment portfolios are still dominated by equity and debt investments in companies, infrastructure has become a critical component in strat-egies for diversification and the hedging of risks.

In the developed world, new infrastructure oppor-tunities arise because older systems are wearing out or

becoming overburdened. The highways and power plants of the 20th century have to be replaced or rebuilt for the 21st, and this time it is investors, not governments, who are behind them. In the developing world, many of these systems are being built for the first time, and governments don’t have the wherewithal to build and finance them. IMAP member companies around the world are helping clients invest in, buy or sell infrastructure as-sets, to the mutual benefit of consumers, government and investors.

Pelino Colaiacovo is with Morri-son Park Advisors in Canada

There has been a spike in M&A activity over the past year. But which sectors are getting the most attention? Here, five international M&A experts identify a ‘hot’ industry and sector for deals