Britain’s property consultancy world is alive with merger and acquisition activity, after all, the longest of long-running rumours – a tie-up between Cushman & Wakefield and DTZ – has finally happened. Savills is hoovering up smaller rivals and Colliers International is clearly on the prowl.
However, the buzz around real estate consolidation is dwarfed when compared with the hunt for acquisitions and the structural shift that is under way in the pharmaceutical world.
In the past 10 years, US drug companies have carried out nearly $600bn (£389bn) of mergers and acquisitions, while their European peers – from Britain’s GlaxoSmithKline to Switzerland’s Roche Group – have splashed out $269bn during the same period.
Moreover, the figures from Thomson Reuters show that the rate and the value of deal-making has picked up since 2009, with just over $500bn spent across the Atlantic and $155bn laid out in Europe. On one day alone in March this year, three US acquisitions totalling more than $16bn were announced.
The reasons for this M&A rush are simple – drug companies need scale, they need to reduce overheads and they need to more effectively channel the often astonishing sums of money spent on research and development to try to find the next big drug.
Many pharmaceutical companies have realised it is sometimes easier to buy a rival with a healthy pipeline of drugs, or back an innovative start-up biopharmaceutical company developing the next big breakthrough treatment.
Some of last year’s US merger deals were also driven by tax-inversion rules, which allowed significant savings if an American company switched or inverted its headquarters overseas for lower tax. However, the rules have been tightened since then.
In the present low-interest-rate environment, investors are happy to back companies that can carry out acquisitions that maximise savings and growth.
It is easier said than done, though. Teva, the world’s largest generic drugs maker, is currently in the midst of a $40bn hostile takeover bid for Mylan, an American rival which makes an EpiPen allergic reaction treatment.
If the Israeli company succeeds, and its attempt is being resisted, it would create a worldwide empire with annual revenues of $30bn. In turn, Mylan is locked in its own battle to secure Perrigo, an Irish generic drug maker, which has spurned its $36bn cash-and-shares takeover offer.
However, the subject of most fevered M&A speculation is Glaxo. Britain’s biggest pharmaceutical company is considered to be vulnerable as it seeks to offset falling sales of Advair, its “blockbuster” asthma drug facing generic competition, and overcome a Chinese corruption scandal.
Last year Glaxo carried out an asset swap with Novartis, buying the Swiss group’s vaccines unit in exchange for its oncology business. And earlier this month, Glaxo announced a further significant restructuring of its business in a last throw of the dice for chief executive Sir Andrew Witty.
The drug-maker is switching its focus from selling blockbuster drugs to developed countries to high-volume, low-value medicines; it has scrapped plans to float ViiV Healthcare, its HIV treatment operation, and it will slash its cash return to shareholders.
Many in the market believe that Pfizer is mulling a bid of at least $120bn for Glaxo. The prospect of a Pfizer bid for Glaxo may not be welcomed. David Cameron has made it clear he wants a roster of strong, independent British companies and will defend nationally important businesses. Pfizer’s abortive attempt for AstraZeneca failed last year because of the American group’s poor reputation for supporting investment in this country. Pfizer was criticised after closing its research lab in Sandwich, Kent, with the loss of more than 1,500 jobs.
Last year AstraZeneca emphasised its commitment to scientific research in Britain when defending itself from Pfizer’s bid and argued that a buyout by the group could prompt investment to go overseas. However, analysts think it is a case of when, not if, Pfizer comes for Glaxo, whose stock has lost 11% of its value over the past year.
Last week, Deutsche Bank’s Gregg Gilbert wrote a note stating that a merger would be materially accretive for both parties. He even titled the note Introducing PfizerKline.
Deirdre Hipwell is mergers & acquisitions correspondent at The Times
