While there is strong momentum in favor of more large deals in the year ahead, barriers will prevent some transactions from reaching the finish line. After all, the risk of failure can rise substantially in megadeals, given the number of parties involved in the equation, from shareholders to regulators to other potential suitors for a target.
Toppan Vintage, a trusted financial printing and communications company, in partnership with Mergermarket, is pleased to present the newest edition of M&A Pulse newsletter. This newsletter features expert insights on high-dollar transactions, or "megadeals", in 2018.
Toppan Vintage question: What will be the biggest barrier to megadeals over the coming 12 months? Leading deal experts weigh in...
Two challenges that many megadeals face are often intertwined: excessively high valuations in the opinion of bidders and resistance from shareholders at targets. More than a third of our respondents (36%) believe high valuations will prevent large acquisitions from going through in the coming year and 24% think protests from shareholders will act as a top barrier as well.
Perhaps the highest-profile deal under discussion in early 2018 – Broadcom’s hostile bid for rival Qualcomm – has ostensibly been held up by these issues. In late February, Broadcom offered more than US$115bn for Qualcomm, but shareholders at the target balked, having already rejected a bid of more than US$120bn as too low. As of this publication, Broadcom had not moved to raise their offer, evidently convinced that they would be overpaying.
Another recent deal thwarted by high valuation demands and shareholder resistance was Emerson Electric’s multi-billion-dollar bid for industrial products maker Rockwell Automation. The latter rejected three increasingly lucrative offers from Emerson before the bidder stopped pursuing the deal in November 2017.
Antitrust risk remains a perennial threat to megadeals as well. The US$105bn tie-up between AT&T and Time Warner, for example, remains mired in regulatory approval processes after being originally announced in October 2016.
The director of M&A at an oil & gas company warned that valuations could spin out of control for certain large targets, preventing deals from getting done. “Valuations will be a concern for most of the businesses planning to enter a megadeal,” the M&A director said. “Although buyers will be prepared for slight increases, there will be targets that will demand valuations that are out of reach.”