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📅 The $200 billion month

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Hello Matt, this Weekly Review is for the week of Nov 20 - 24 and should take you 3:00 minutes to read.

M&A Emerges In Apt Conditions

After a slow start for big mergers and acquisitions (M&A) this year, dealmaking has picked up in November – and there’s plenty more under discussion.

  

Recap

  • Three weeks ago, Broadcom made a bid for Qualcomm, a deal that would create a $200 billion computer chip-making juggernaut. Qualcomm, which is itself trying to buy rival NXP in a $38 billion deal, has so far rebuffed the attempt. > Read our story

  • Two weeks ago, it was reported that Hasbro had tried to buy rival Mattel in a deal that would unite America’s two biggest toy companies. > Read our story

  • Over the past few weeks, it’s emerged that a plethora of media and telecom giants, including Disney and Comcast, are considering bidding for 21st Century Fox’s television and movie business. > Read our stories here and here

  • On Monday, the US Department of Justice sued to block telecom giant AT&T from acquiring Time Warner, the media company, on the grounds that it would harm competition too much. > Read our story
 

Connecting The Dots

   

It was a slow start to 2017, and the overall volume of global dealmaking is still about 12% lower than this time last year – at its lowest since 2013. November, however, has seen a veritable frenzy of activity, putting it on track to be

one of the busiest months ever

. And there are yet more blockbuster deals simmering in the background.

Political uncertainty following President Trump’s election is often cited as one of the reasons for the M&A slowdown (e.g. companies may be waiting for clarity on tax reforms before making big decisions), but the underlying forces driving M&A appear to be overriding the “uncertainty” factor. For one, interest rates remain at a historically low level, meaning it’s quite cheap for companies to borrow in order to fund takeovers.1

  
  

Take Aways

  1. Companies in established industries are also getting a kick from their new competitors, the fast-growing tech giants.
    Disney’s interest in Fox almost certainly stems from a desire to bulk up its content offering to better compete with the likes of Netflix. Meanwhile, US drugstore CVS is looking to take over health insurer Aetna amid signs that Amazon is entering the pharmacy business. The plan is to offer services like blood testing and insurance sign-up in CVS’s existing physical stores – business lines that Amazon can’t offer (yet!). Often M&A occurs in staid industries where companies see consolidation as a way to cut costs; but it’s competition from the new tech giants that’s behind some of the big deals currently under consideration.2
     

  2. The attempt to block AT&T’s acquisition of Time Warner may scupper dealmaking in the near term.
    The outcome of the court case between the US Department of Justice and AT&T will likely have a significant bearing on future M&A. Just the decision to challenge the deal may be an indication that President Trump’s administration is not as open to dealmaking as many had assumed. If companies think a deal will get blocked, they’re less likely to go through the hassle of trying in the first place.

  

On Our Radar

 

Chinese stocks had their worst day in more than a year on Thursday as they fell over 3%. There’s increasing nervousness that the Chinese government’s recent attempts to combat high debt within the country will have a negative impact on companies’ profits (e.g. higher interest rates mean higher costs). Back in 2015, big selloffs in China reverberated in markets around the world – so this is very much worth keeping an eye on.


Further Reading

1. The rising level of companies’ debt, partly due to M&A costs, is causing concern among some investors, via Bloomberg: Read More

2. JPMorgan’s co-head of M&A says competition from tech giants is a major reason for increasing M&A, via Business Insider: Read More

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