Spare a thought for the good old-fashioned merger. Global M&A activity, at $1.7 trillion for the first nine months of the year, is even more insipid than the headline 16 per cent drop from a year ago, according to Thomson Reuters data. It’s hard to find traditional tie-ups among the biggest deals amid all the spinoffs, partner buyouts and nationalisations. Bankers cannot live by such bread alone.
The first full-blown merger on the list is only the year’s eighth-largest — CNOOC’s $18 billion bid for Canadian oil company Nexen. And, that transaction has many hurdles to clear before reaching the finish line. Only 10 others in the top 30 qualify as standard unions. They’re worth $87.5 billion, or just 23 per cent of the volume — barely more than a third of last year.
Instead, buying up the remainder of another company already part-owned has been a favourite M&A practice this year. It accounts for the year’s largest deal — Glencore’s tortured $46 billion acquisition of the two-thirds of Xstrata it doesn’t own. Another nine such purchases make the list, including Anheuser Busch snapping up the rest of Modelo and Brazil’s Banco Itaú swallowing the other half of Redecard for $6.8 billion.
Two of the four largest deals, involving Kraft and ConocoPhillips, are breakups. Both provide some handy income for investment bankers, but it’s also usually shared between M&A advisers and their equity capital markets brethren. A couple of nationalisations also make up the top 10 this year — Spain’s seizure of Bankia and the Japanese government’s decision to take control of TEPCO. Such work doesn’t usually pay well.
Wall Street will have to hope chief executives get bolder. Fees from completed deals have declined 22 per cent from last year to $17.7 billion. Low interest rates and high cash balances should foster deals, but that story has been spun for some time now. Maybe time will finally be on bankers’ side. A recent spate of profit warnings and the thinning of cost-cutting options could spark the merger revival bankers have long awaited.