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Back in the game: The rise of US M&A

After a number of tough years, US M&A roars back with megadeals, high prices, ambitious buyers and willing sellers fueling a sense of optimism.

The first half of 2014 saw a great dealmaking revival in the United States. Deal values are up to their highest levels in five years, the use of shares to finance deals has hit a six-year high and inbound M&A into the United States has posted the best first half on record since H1 2007. This uptick in activity has been a long time coming. Corporates and private equity firms have been sitting on substantial cash piles for years, and have finally found confidence to pursue expansion through M&A again, along with willing sellers.

The backdrop for dealmaking now looks the most favorable in years. The US economy has delivered steady growth for the last four years, and the S&P 500 has climbed by 96.7 percent since 2009. Shareholder support for deals is more robust. Chief executives and boards are increasingly optimistic and are willing to pay high prices for acquisitions. Growth is important, and when a board sees everyone around them growing by acquisition, there is a competitive imperative for them to do the same.

The regulatory environment has been supportive of M&A, too. Even in a market where regulation has been generally viewed as quite restrictive, buyers are increasingly able to develop rationales that quell regulators' concerns.

However, despite the M&A market looking stronger than at any time since the financial crisis, this is not a time for complacency. A big part of the recovery story has been driven by large corporate-backed megadeals. Deal values are significantly higher as a result, but there has not been a parallel increase in deal volumes. Private equity's share of total dealflow is down. If megadeal activity eases, the rest of the market may feel the repercussions. Overall volume will have to increase before we can confidently say that the US M&A market has recovered fully.

As we go to press, we note that stock markets have been rocky recently, and government action has led the AbbVie board of directors to withdraw its support for the Shire acquisition. Pundits have begun to predict the end of the M&A boom. We aren't so sure. Without the impact of a significant exogenous shock, we expect 2015 to be a very active year for US M&A. The US economy and the US M&A market are in a much better state than they were five years ago—and they are quite strong compared with Europe and Asia.

We hope you find this report informative, and welcome the opportunity to discuss these subjects with you in greater depth.


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The US M&A market roars back to life
• US deal values reached a five-year high in H1 2014 • Deal volumes have risen by a third in comparison with the same period last year • Stable economy and backing from shareholders have been the foundations for the rise in M&A • Megadeals have seen the sharpest rise with 69 such deals in Q2 2014—the highest volume of deals worth US$1 billion or more in the last five years • Technology, media and telecommunications, and pharma, medical and biotech are the most active sectors

Sector watch
• TMT most active sector in H1 2014, accounting for 34 percent of M&A activity by value • M&A driven by consolidation of broadband, TV and mobile services as well as growing demand for spectrum due to explosion in wireless use • Pharma, medical and biotech second most active sector, accounting for 22 percent of activity by value • Activity driven by replenishing of product pipelines and desire for R&D synergies and tax savings • Pharma, medical and biotech also at forefront of rising use of M&A for tax inversions

The US M&A picture
• Total US M&A volume and value • US M&A by industry, H1 2014 • Case study: acquirer share price reactions • Private equity exits, 2009—2014 • Private equity buyouts, 200—2014 • Inbound M&A by country, H1 2014

Inbound monitor
• US inbound M&A values hit seven-year high in H1 2014 • European takeovers in the United States are up more than a third so far in 2014 • Chinese acquisitions in the United States reach record high • Low costs and strategic opportunities are attracting foreign buyers • UK overtakes Canada as most active foreign acquirer in the United States

The exit era: US private equity
• Private equity exit values reach highest level in last five years • Exit volumes rise 55 percent from H1 2013 to H1 2014 • Trade sales break US$100 billion mark in first half of 2014 • Healthy debt markets balanced by concerns over high valuations • Secondary buyouts in H1 up 45 percent on H1 2013 levels

Conclusion: Back in the game


Video series

Part 1: US M&A roared back in 2014

Partner John Reiss discusses the M&A environment in 2014.

Part 2: Multiple factors unite US M&A buyers and sellers

Partner John Reiss highlights a number of factors that are bringing US M&A buyers and sellers together.

Part 3: US M&A to remain active in 2015

Partner John Reiss explains why US M&A is likely to remain active in 2015.


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© 2014 White & Case LLP