If you thought things were getting over-heated in the property industry, spare a thought for overworked bankers in the world of mergers and acquisitions.
Last year, the global M&A industry struck $4.3tn (£2.9tn) of deals, surpassing the last peak in 2007, just before the global financial crisis.
Analysts point out that the market has surpassed the last high water mark by quite some margin. In 2007 an average of one deal of $10bn or more was announced every week. Last year that average rose to 1.5.
M&A is likely to bring major change to the occupational strategies of each of the companies involved.
But are M&A bankers worried the market has peaked and is heading for another crash? Not a bit of it. In the same way as many property agents feel obliged to talk up the real estate market, M&A bankers are doing the same with much misty-eyed talk in the City about a “golden era of deal-making”.
Few, if any, are expressing doubts about valuations and stretched takeover premiums. Most believe that the market dynamics are “different” this time round, by which they mean less private equity-fuelled mega-dealmaking and more large cross-continent “strategic” and “transformational” mergers.
Almost none of the bankers I speak to regularly believes that the M&A surge is due to end anytime soon, with a host of companies across a wide range of sectors expected to attract takeover attention this year.
The retail and leisure sectors are likely to remain active, with Home Retail Group, the owner of Argos, now the talk of the town following Sainsbury’s rejected approach.
The telecoms sector, in which size has always mattered, should top the hit list again this year. Corporate deal-making is required as companies seek economies of scale and consumers become more demanding about the “interplay” between their fixed line and mobile services.
A takeover situation to watch is the “will they? won’t they?” tango going on between Vodafone and Liberty Global. In much the same way that everybody rightly speculated that a deal would eventually happen between the global brewery groups, SABMiller and AB Inbev, some form of tie-up will likely happen between these two telecoms giants.
Blackberry could also be a target, albeit a “walking wounded” one. The Canadian handset and software group is already the subject of speculation that rivals such as Samsung and even Microsoft are running the rule over it.
There is also no end in sight to the mega-deal boom under way in the pharmaceutical sector, which ended the year with Pfizer and Allergan striking a $160bn deal. European pharmaceuticals companies, such as GSK, Sanofi, Roche, and Novartis, have been less active in M&A than their US peers and could have to make a move soon.
Another sector to keep an eye on this year is financial services. Heavy regulation means that up until now, many of the big players have been more focused on compliance and the disposal of non-core businesses than “strategic” M&A. This could soon change, especially in the insurance sector as it gets to grips with the Solvency II capital regime that came into effect on New Year’s Day.
This is a key sector in the City and consolidation is far from over, not least because there were some jilted brides last year who may still be looking for a groom. RSA Group, headed by Stephen Hester, the former British Land and RBS boss, watched its sale to Zurich Insurance fall apart after the Swiss group ran into internal problems last year. It could still be a target.
I could go on. Takeover target lists are almost writing themselves at the moment, according to bankers, and it looks like we are heading for another bumper year, except perhaps in the oil and gas sector. This is an industry in turmoil where transactions desperately need to take place but, apart from the contentious Shell-BG mega tie-up, deal-making has been stymied by the continued low price of oil.
However, many in the market believe that as low oil prices continue to place severe cost pressures on the industry, from explorers to the large oil majors, it will eventually force structural change and deal-making out of sheer necessity.
Deirdre Hipwell is mergers and acquisitions correspondent, The Times
