1. TheSunday BusinessPost
March8,2015
26 M&ABriefing
Activitysetto
remainrobust
ascompanies
putcashtowork
IMAP’sJurgisOniunas
giveshisassessmentofthe
currenttrendsdrivingthe
globalM&Amarket,writes
PhilipConnolly
The Global o
Mergers and Acquis
Jurgis Oniunas, chairman of IMAP
Progressexpectedfor2015
butcountryoutlooksdiffer
Growthmaybenearingpeak
ineconomyand markets
Favourableconditionsboost
economictransformationLatinAmericanbriefing
USbriefing
Africanbriefing
By Yassine Mekki Berrada
A
fricahasbecomean
obvious choice for
investors,asabroad
rangeoffactorshave
createdfavourableconditions
for economic transformation
in this continent. Although
someSub-Saharancountries
stillsufferfromalackofsecu-
rity and political stability, the
InternationalMonetaryFund
expects Africa to become the
secondfastest-growingregion
in2015,behindEmergingAsia.
The fast improvement of
Africa’s macroeconomic
performance is supported
by investor-friendly regula-
tory measures and startling
economic, social, legal and
businessenvironmenttrans-
formations.
Boosted by these strong
fundamentals,Africaisenjoy-
ingitsbestspellofinvestment
banking activity. According
to Capital IQ, investment
bankingtransactionsinAfrica
amountedto$118billionover
the 2013-2014 period, main-
ly driven by M&A deals and
publicofferings(respectively
44percentand49percentof
total value). Over the same
period, South Africa drew
the lion’s share (47 per cent),
followed by Nigeria (13 per
cent), Morocco (9 per cent),
Ivory Coast (6 per cent) and
Egypt(5percent),intermsof
transaction value. Main sec-
torstargetedwereenergyand
mining, telecommunication
and financial services.
Today, the African market
isbullishwithheterogeneous
evolutionsacrosstheregions.
Hence,theAfricantransaction
landscape is concentrated,
with regional players driving
the whole market.
The South African market
is the most mature in Africa
intermsofinvestmentbank-
ing,with2013-2014totaldeal
valueamountingto$55billion
- 47 per cent of Africa’s total
transactions volume.
Thesecondlargestcontrib-
utor in terms of transaction
value is Sub-Saharan Africa
(AfricaexcludingSouthAfrica
andNorthAfrica),with34per
cent of Africa’s transactions
during 2013 and 2014. This
area is all the more impres-
sive as investment banking
transactionsareboomingwith
a 2009-2014 compound an-
nualgrowthrateof39percent.
Theincreaseismainlydriv-
enbyNigeria–acountrywith
strong fundamentals and a
widerangeofnaturalresourc-
es (eg, disposal of Shell’s oil
wellsat$5billion)–andoth-
er emerging countries which
issued sovereign bonds (eg,
Ivory Coast).
North Africa (Morocco,
Algeria, Tunisia, Libya and
Egypt) only accounts for 18
per cent of the transactions
in the continent over 2013-
2014, as it remains affected
by the political turmoil after
the Arab Spring. However,
over the same period, some
major deals were completed:
theacquisitionofMarocTele-
combyEtisalatinMoroccofor
$7.2 billion; the acquisition
of Optimum Telecom Alge-
ria by the FNI in Algeria for
$3.1billion;theacquisitionof
Egypt Oil And Gas Business
by Sinopec International Pe-
troleuminEgyptfor$2.6bil-
lion.Thelargestcontributorin
termsoftransactionvaluewas
Morocco,while79percentof
the strategic sponsors for this
region came from the Middle
East and North Africa.
TransactionsinAfricawere
boostedtheselasttwoyearsby
largedealsandsovereignfund
raising.Nevertheless,sectors’
contribution is evolving: op-
erationsinthefieldofnatural
resources sharply decreased
in 2014 as regards to previous
years, whereas for the tele-
communication sector, 2013
and2014wererecord-break-
ing years.
2015 is expected to remain
strong, as some very large
transactions were already
announced,suchastheacqui-
sition of Pepkor by Steinhoff
international at $5.7 billion.
Thus, in line with the latest
trends,2015willprobablysee
theemergenceofnewsectors
to boost transactions on the
continent.
YassineMekkiBerradaisapartner
with Ascent Capital Partners
T
he current high level of activity in the
mergers and acquisitions market is set
to continue for a couple of years, ac-
cording to one of the world’s leading
advisory networks.
Jurgis Oniunas, chairman of global
advisory network IMAP, believes cash-
rich companies looking for deals will
continue to drive the market.
“Merger and acquisition strategies are coming back
into vogue as methods to drive growth,” said Oniunas.
“We are seeing high profit levels with low levels of in-
vestment, so there is a lot of cash built up. At the same
time at the mid cap level, we have seen that private
owners have low interest rates, so they don’t have many
places to invest the money they might get from a po-
tential sale. It is ironic that the best investment they can
see is the company they are already in. That is creating a
lack of good opportunities at the mid cap level.”
Low interest rates have also contributed to the growth
in buyer activity as acquisition finance remains cheap,
so companies are increasingly casting their net into a
global market for opportunities. “There is more focus on
cross-border deals,” said Oniunas. “There are opportu-
nities in emerging markets, in the US and in Europe at
a certain level, while we
have also seen a lot of deals
happening in Asia.”
Oniunas has also seen
the overhang in pri-
vate-equity firms as a
driver in the market.
“There is a lot of money
[in private equity] that is
not being put to use,” said
Oniunas. “At the same
time private equity groups
are using the robustness
of capital markets to exit
through initial public of-
ferings.”
According to Oniunas,
the level of activity in the market is set to continue for
a number of years yet. “There is enough fuel there for
this to be a multi-year thing,” said Oniunas. “There are
dangers in the market of course. The slowdown in China
is a major issue – this country has been a major driver
of growth and has shown a big drop in industrial profit-
ability, while there is also over-capacity. There is also the
effect of rising oil prices in the Russian market and in
Latin America.”
For Oniunas, Ireland has been one of the major bright
spots in Europe over the past 12 months and the trend of
Irish firms – such as CRH and Smurfit Kappa – looking
for international deals is set to continue.
“We have seen a number of large Irish companies
starting out locally and going overseas simply because
the market opportunities locally are too small,” said
Oniunas. “Now some of these companies are huge mul-
tinationals which have expanded by mergers and acqui-
sitions. That market depends on the local opportunities
to raise finance and things like tax structures.”
Internationally Oniunas has also seen a rise in val-
uations across a number of sectors, something which
could become an issue for private equity firms. “The rise
in valuations has been very noticeable, which is based
on stock markets,” said Oniunas. “It is more or less
across the board – valuations are rising in terms of stra-
tegic deals but private equity firms are also being forced
into higher valuations. They don’t like to do that as their
whole reason for being in business is to buy cheaply
and sell more expensively, which is one of the reasons
that they are not fully invested. The smaller the deal, the
smaller the valuation, not just in absolute terms but also
in terms of multiples, as there are more risks and less
synergies. Also it depends on the growth of the market –
I recently spoke to someone in India who laughed when
they heard that we were happy to get nine times EBIT-
DA on a media deal.”
By Gilberto Escobedo
T
hegrowthrateofLat-
inAmerica’seconomy
plungedin2014.How-
ever, it’s expected to
experience moderategrowth
in2015.Theregion’sconsum-
er expenditure is expected to
increase in 2015. Caribbean
economies will lag behind
other countries due to their
excessiverelianceontourism
and remittances.
Economic growth in Lat-
in America will range from
3 per cent to 4 per cent over
the next year, which would
support an increase in M&A
activity. The respondents are
notablymoreoptimisticthan
other commentators: the In-
ternational Monetary Fund’s
(IMF) projection in October
isfortheeconomiesofthere-
gion(includingtheCaribbean)
to grow by an average of 1.3
per cent in 2015.
The country-by-country
breakdownismixed,however.
Brazil,thedominantecon-
omyinLatinAmericaandthe
previousgo-todestinationfor
M&A and other investments,
continues to battle slower
economic growth, with the
IMF forecasting 0.3 per cent
for 2013 compared to 2.5 per
cent last year.
Mexico is benefiting from
greater investor confidence
after implementing sweep-
ing structural reforms in its
labour market, financial sys-
tem,telecommunicationsand
energysector,allofwhichare
aimed at enticing foreign in-
vestment. The country’s en-
ergyandtelecommunications
sectorsaresettobeparticular
beneficiaries.
TheeconomiesofPeru,Co-
lombia and Bolivia are also
enjoyinghighergrowthrates.
TheIMFexpectsPeruandCo-
lombiatogrowby3.6percent
and 4.8 per cent, respective-
ly, during 2015, well ahead of
major international markets
such as the US and Europe.
WhileBrazilstillhashalfofthe
totalregionalM&Amarket,its
overall share of M&A activity
has been declining in favour
of countries such as Mexico
and Chile.
It is projected that transac-
tionsinLatinAmericaoverthe
next year will be dominated
by acquisitions. Specifical-
ly, acquisitions by strategic
investors are likely to be the
most common type of trans-
action in 2015.
Mexico’s energy reforms,
which will allow private in-
vestmentintothesector,have
takencentrestageasoneofthe
most significant opportuni-
ties, not only in Latin Amer-
ica,butalsoamongtheglobal
energy markets.
Mexico had proven oil re-
servesamountingto10.9bil-
lion barrels in 2013. Oil pro-
duction was 141 million tons
ofoilequivalentin2013.There
havebeencomplaintsthatPe-
mex does not have sufficient
funds available for explora-
tion and investment, owing
to the high financial burden
placed upon the company by
the government.
Natural gas reserves to-
talled 0.3 trillion cubic me-
ters in 2014 and production
amountedto51.0milliontons
of oil equivalent in that year.
Both production and con-
sumption of natural gas are
steadily rising.
Together,oilandnaturalgas
will likely remain the dom-
inant energy sources until
2020, accounting for well
over 80 per cent of total en-
ergy consumed.
GilbertoEscobedoiswithSerficor
Partners in Mexico
By Scott Eisenberg
T
he US economy wit-
nessedconsistentbut
moderategrowthover
the past two years.
Real GDP grew approxi-
mately 2.3 per cent per year
for 2013-14 (nominal GDP
grew approximately 3.8 per
cent per year for the past two
years). While that is not very
strong growth, it has been
enoughtosubstantiallyreduce
unemployment. As recently
as January 2012, the unem-
ployment rate was over 8 per
cent. At December 2014, the
unemploymentrateintheUS
was 5.6 per cent.
Mostindustriesareenjoying
greatstability.Inflationisvery
low,capitalisreadilyavailable
andinexpensive.Theindustry
with the biggest challenge is
energy, due to the drop in oil
prices. The manufacturing
sector is very strong. The two
largestindustriesintheUSare
automotiveandhousing.Both
of these industries are enjoy-
ingverystrongresults.Annual
auto sales finished 2014 at a
16.9 million run rate, which
is near full capacity. Real es-
tatepriceshaveincreasedap-
proximately25percentsince
January 2012.
Inthefinancialmarkets,the
US markets have performed
very well and the Dow Jones
Industrials Average and S&P
500 are at record highs. For
the three-year period ended
December 31, 2014, the S&P
500 generated an annual re-
turn of 17.5 per cent, which
is substantially higher than
the returns generated by the
non-USequitiesonanaggre-
gated basis.
Deemed a safe haven, the
dollar is rallying. Since the
last half of 2014, the dollar
has increased significantly
against most currencies and
approximately 20 per cent
againsttheeuro.Interestrates
aremodestlyhigherintheUS
as the rate on the US 10 year
Treasury is 2 per cent, which
is above the rate in most Eu-
ropean countries and Japan.
In terms of the M&A mar-
kets, activity in the US has
been steadily increasing over
thepastcoupleofyears.There
wasaspikeofsalesattheend
of2012duetotaxlawchanges.
After that, there was a slight
reduction in M&A activity in
the lower and middle mar-
kets as many of the sellers
contemplating a sale did so
in 2012. But as the economy
was gaining steam, the larger
segment of the market wit-
nessed strong growth. From
2013 to 2014, the number of
transactionsinexcessof$100
milliongrewbyapproximate-
ly 37 per cent.
Fortransactionsunder$100
million, the growth rate in
the number of transactions
in 2014 vs 2013 was a much
more modest 11 per cent. In
addition to the strong M&A
market, there has also been
an increase in IPOs. The in-
dustries with the most M&A
activity in terms of the num-
ber of transactions are busi-
nessservices,technologyand
finance.
Overall, there is a very sta-
bleandsteadyeconomyinthe
US and the financial markets
havegeneratedverygoodre-
turns. The concern is that we
may be nearing a peak and
that the growth in both the
economyandthemarketswill
be very tepid.
Scott Eisenberg is the managing
partner and co-founder of Am-
herst Partners
Thereismore
focuson
cross-border
deals
Thisweek,morethan150leading
internationaldealmakerswill
arriveinDublinforamajorM&A
conference.AllaremembersofIMAP,
aninternationalaffiliateofcorporate
advisorsspecialisinginmid-market
transactions.Theconference,hosted
byIrishfinancehouseKeyCapital,
bringstogetherseniorM&Atransaction
advisors,corporatedevelopment
officersandglobalinvestors.Here,some
leadingmembersofIMAPprovidea
briefingonglobalM&Aactivity

2. TheSunday BusinessPost
March8,2015
M&ABriefing 27
utlook
sitions
By Michael Reeves
B
ritain represents the
largest market for
mergers and acqui-
sitions (M&A) in Eu-
rope. Supported by substan-
tial private equity activity in
London, 2014 was the best
year for the market since the
economic downturn. In re-
ality this upturn in M&A was
driven by an increase in deal
values,asoveralldealvolume
remained largely flat.
A number of factors con-
tinue to play to the strengths
oftheM&AmarketinBritain,
namelylowinterestrates,ever
increasingdemandinnumer-
ous end-markets and greater
banksupportforlargertrans-
actions.
Last year saw numerous
high-profile transactions,
with a particular focus on
US buyers acquiring a num-
ber of high-profile British
assets. These included Wal-
green Co’s $24bn acquisition
of AllianceBoots Ltd from US
private equity firm Kohlberg
KravisRobertsandAlcoaInc’s
$2.9bn acquisition of Firth
Rixson Ltd from US private
equityfirmOakHillPartners.
The key driver for trans-
actions such as these was
US corporates utilising their
strongbalancesheetstodeliv-
er top-line revenues growth.
Inaddition,theyareseekingto
expandtheirglobaloperations
at a time when British-based
players in a number of sec-
tors are experiencing strong
growth.
An additional driver for
acquisitive groups is the po-
tential for them to undertake
a tax inversion, whereby
they relocate their corporate
headquarters to countries
such as Britain where a more
attractive and benign tax en-
vironment exists. Whilst this
factor clearly increases the
appetite of buyers for British
assets, the failure of Pfizer’s
proposed $110bn acquisition
ofAstraZenecaplcandAbbVie
Inc’sproposed$54bnacquisi-
tion of Shire plc showed that
a combination of investor,
public and regulatory senti-
ment can still foil tax-driven
M&A deals.
A further important factor
for British M&A has been the
growing appetite from banks
and other lenders to provide
increasingly attractive debt
packages. Combined with
the low interest rate envi-
ronment, this trend is seeing
both trade buyers and pri-
vate equity investors bene-
fiting from increasing bank
support for strategic deals.
Noticeably Britain is becom-
ing an important destination
for new alternative US debt
funderswhohaverecognised
thatthereisanopportunityto
replicate their recent experi-
ence in the US and follow the
pathofUSprivateequityfirms
who invest in Britain.
With Britain forecasting
GDPgrowthofaround2.5per
cent in 2015, the potential for
furtherM&AactivityinBritain
this year is clear. Mega deals
such as BT Group plc’s $19bn
acquisitionofEEfromOrange
SAandDeutscheTelecomAG
will continue to be the big
talkingpoints.Othertransac-
tionsofnoteinearly2015have
included Ball Corp’s $6.9bn
acquisition of Rexam plc and
Fairfax Financial Holdings
Ltd’s $1.9bn acquisition of
Britplc,whilstStryker’sInc’s
proposed$20bnacquisitionof
Smith&Nephewplcremains
in the pipeline.
The strength of the US dol-
lar is likely to see US buyers
remain the primary drivers
of inbound M&A activity in
Britain. At the same time, US
multinationals tend to hold
largeforeignreservesanditis
expected that they will con-
tinue to deploy this cash on
acquisitions.
Michael Reeves is chief executive
ofClearwaterInternationalBritain
Britain’supturndrivenbyincreaseindealvalues
BY TERO TIILIKAINEN
I
reland’s emergence from
recession is as well de-
served as it was hard
fought.Sevenyearsofaus-
terity has made us – and our
companies – better, stronger
and faster. Corporate balance
sheets are leaner. Operations
are more efficient. Margins
have expanded. Indeed, the
fat has been cut.
Irish companies are now
poised to capitalise on these
developments. No longer are
they pining for the past, but
rather they are planning for a
very bright future. This new-
found optimism is manifest-
ingitselfindifferentways.For
buyers,ithasfosteredadesire
to grow and expand into new
markets. For sellers, it means
they are now operating from
a position of strength and
entertaining real, rather than
distressed,offers.Bothareno-
tions many would not have
even dreamt of a few short
years ago.
And while this recovery is
nascent, it is broad. Compa-
nies in sectors as varied as
dairy, technology and en-
gineering services, to name
but a few, are all beginning to
explore strategic alternatives
for the first time in years.
This activity is being fu-
elled not only by better bal-
ance sheets and a recovering
economy,butalsobyaninflux
of foreign capital and non-
bank financing. Indeed, Irish
companies may yet still face
many obstacles as they enter
thisneweconomiccycle,but
itisclearthatliquiditywillnot
be one of them.
Key Capital, as the exclu-
siveIrishpartnerofIMAP,has
had a unique vantage point
throughout this recovery.
Our network connects us
to buyers and sellers around
the world. We speak to Irish
companies every day about
their desires to expand into
new markets, and to foreign
buyerseagertoinvestingrow-
ing Irish companies.
The interest is mutual. It is
pronounced. And it is real.
Thisweek,weintendtotell
this story to the world. Key
Capitalhasinvitedmorethan
180 of our IMAP colleagues
from30countriestocomeand
hear the story of the Irish re-
covery for themselves at the
IMAP Spring 2015 Confer-
ence. And if we leave them
with one message, we hope
it’s this: Ireland is back, and
it’s better than ever.
Tero Tiilikainen is a director in
corporate finance at Key Capital,
the Irish affiliate for IMAP
RecoverynascentbutbroadinIrishbusiness
GreatprospectsforChina
despiteeconomicslowdown
OutboundM&Aincrease
highlightsstrategicshift
By Francisco Gómez
G
DP growth in the
EU remains slug-
gish. Sputtering
investment has so
far prevented a broader and
more robust acceleration of
domesticdemand.Amidchal-
lengingglobalconditions,the
fall in crude oil prices should
provide a welcome boost to
growth.
The European economy is
entering its third year of re-
covery,buteconomicgrowth
remains stuck in low gear
and output has yet to reach
pre-crisis levels. Slowly ex-
pandingprivateconsumption
has been the only reliable
source of growth since the
start of the recovery almost
two years ago. Investment
faltered in 2014 and remains
weak. Longer-term trends
such as ageing and declining
productivitygrowthmayalso
have affected short-term in-
vestmentdecisionsbyreduc-
ing expected rates of return.
Against this backdrop,
monetary accommodation
and the shift of the fiscal
stance to neutral have so
far not been enough to spur
growth. Headline inflation
has dropped, largely on the
back of lower energy prices,
which should benefit growth
by boosting real incomes.
In the short run, downside
risks have intensified, but
new upside risks have also
emerged. In a more long-run
view, are we facing an era of
low growth, low investment,
low inflation and the occa-
sional storm in global finan-
cial markets? Not if the right
policiesareimplementednow
with determination.
New developments have
occurred that are expected to
brighten the EU’s econom-
ic outlook in the near term.
Whileallofthemhavepoten-
tialtostimulateeconomicac-
tivity,theirimpactoninflation
differs.Thethreemostprom-
isingnewfactorsarethesharp
fall in oil prices, the newly
announced monetary policy
measuresintheeuroareaand
the EU Investment Plan (the
‘Juncker Plan’). These three
factors have the potential to
stimulate economic activity.
Overall, real GDP is pro-
jected to grow by 1.7 per cent
in the EU and by 1.3 per cent
in the euro area in 2015 and
to accelerate to 2.1 per cent
and 1.9 per cent respectively
in 2016.
There is apparently a lot of
confidence and the recovery
in key markets has improved
the prospects for M&A.
Although return expecta-
tions and multiples for the
whole of Europe fell in 2014,
valuations in Northern and
Western Europe had experi-
enced a climb in the previ-
ous two years. Deal values
dropped, but the volume of
transactionsincreased.Survey
respondentsbelievemomen-
tum is building, which will
push up valuations to a five-
year high run. Experts agree
that a complete turnaround
is not to be expected, but do
anticipateabetterM&Amar-
ketinWesternEuropein2015.
However, the diversity in
economic performance is
likely to persist. Following a
riseinM&Avaluationsin2014,
amoreoptimisticoutlookfor
NorthernandWesternEurope
means that valuation multi-
ples are expected to continue
increasingtoreachamultiple
of 10.7 in 2015. The outlook
for Southern Europe remains
subdued. Multiples in Cen-
tral and Eastern Europe slid
in 2014, but respondents an-
ticipate a big pickup.
FranciscoGómezworksforClear-
water International Iberia
Valuationoutlookhingeson
outcomeofpolicyaction
Irishbriefing
Chinabriefing
Japanesebriefing
Europeanbriefing
Britishbriefing
BY Eduardo Morcillo
F
romamacroeconomic
perspective, the Chi-
neseeconomyishead-
ingforasustainedpe-
riod, say of up to five years,
of around 6-7 per cent GDP
growth. This slowdown from
previousdouble-digitgrowth
isconnectedtoagovernment
economicrestructuringplan,
aimedattacklingcorruption,
excesscapacity,questionable
bank loans, and other indus-
trialbubbles,allconsequences
ofthetraditionalstate-backed
splurge in spending. In our
view,suchshort-termmoves
aretobewelcomed,andthey
shouldn’t detract from the
excellent mid- to long-term
prospects.Themiddleclassis
still growing by 30 to 40 mil-
lion every 18 months, driven
bythespreadofurbanisation,
especially into tier two, three
and four cities.
The service industry has
been completely rebooted in
recent years too, with untold
improvementstolivingstan-
dards and significant invest-
mentinhealthcare,education
and environmental sectors.
Thesemarketsareperforming
very strongly right now. For
example, healthcare is grow-
ing at more than 20 per cent.
From a business perspec-
tive,whileinternationalfirms
continue to explore new
sourcesofgrowth,theimper-
ative has become profitable
growth. After many years of
piecemealexpansion,wehave
been working with clients to
rethink their structures and
portfolios,placingtheempha-
sisonwhatmakesmostsense
forChina.Profitdriverswithin
the business are being better
understood,resourcesreallo-
catedaccordingly,andareasof
under-performancenolonger
tolerated. Whereas the incli-
nation of the past might have
beentogoitalone,weexpect
our work on strategic part-
nerships and the realisation
of operational synergies to
continue through 2015.
Inthiscontext,international
firms continue to pursue ac-
quisitionsoflocalcompanies.
Interestsinmarketaccess,rel-
evant products and building
scaleremain.However,where
sectors are maturing, IMAP
China is increasingly work-
ing on transformative deals
intended to reshape industry
structuresandbusinessmod-
els. An increasing number of
international firms will be
trying models in China that
aren’tdeployedanywhereelse
in the world.
Meanwhile, we have seen
an increase in disposals in
China. This is not just Chi-
nese business owners with-
outsuccessionplans,butalso
private equity firms seeking
exits to trade buyers as they
moveintonewroundsoffund
raising,andbothChineseand
international firms spinning
off non-core businesses. We
expecttoworkonmanymore
disposals through 2015, con-
tributing to the gradual con-
solidation trend.
Eduardo Morcillo works for In-
terchina
By Jeff Smith
I
n Japan, prime minister
Abe’s monetary and fis-
cal policies have led to a
doubling of the Nikkei
stock index since he took
office. He is gradually acting
on structural reforms (the
third of his three econom-
ic policy ‘arrows’) and his
party won another election
last December, but the grace
period for showing results in
the real economy is winding
downandbusinessownersare
anxious to see if the recovery
can be maintained.
In March we are entering
the spring wage bargaining
season,whichwillbeatestof
whether prime minister Abe
is able to generate the wage
inflation which is key to his
policies.
Meanwhile,thereareobvi-
ousconcernsaboutlongterm
domesticgrowthinacountry
whereby2060thepopulation
is expected to shrink by one
third and the portion of pop-
ulation over 65 will rise to 40
per cent.
Withthisbackground,Jap-
anesecompaniesaremaking
useoftheirlargecashbalances
andtheeconomicrecoveryto
act on bold outbound M&A
strategiesandpositionforthe
long term.
Based on deal tracking by
Recof Data, total M&A vol-
umeinJapanagainincreased
in 2014 by 10.3 per cent and
outboundcross-borderM&A
increased by 11.6 per cent,
forming 23.4 per cent of total
M&A volume.
Perhaps the best illustra-
tion of this strategic shift was
spirits and beverage maker
SuntoryHoldingsannouncing
2014’s largest outbound deal,
with its $16 billion acquisi-
tionofUScompanyBeamInc.
Theactivenatureofconsumer
products companies in out-
bound M&A was also illus-
trated when leading vinegar
maker Mizkan surprised the
marketlastyearwithits$2.15
billion acquisition of Unile-
ver’s Ragu and Bertolli pasta
sauce businesses.
Other noteworthy activi-
ty has been tie-ups between
leadingJapaneseandnon-Ja-
pan Asian players. Trading
houseItochuenteredintotwo
suchmajortransactionswith
a cross shareholding invest-
ment in Thailand’s Charoen
Pokphand Group (CP), and
thenjointinvestmentwithCP
GroupinChina’sCITICGroup.
For Japanese companies
with business-to-business
models,theywilloftenmake
cross-borderacquisitionsthat
allow them to support their
Japanese clients that are ex-
panding outside Japan, as
well as allow them to build
channels to serve foreign
businesses.
Twotransactionsillustrative
of this theme are the acqui-
sitions this year by transpor-
tation/delivery companies
Kintetsu World Express and
Japan Post announcing deals
worthover$1billionforcom-
paniesbasedinSingaporeand
Australia respectively.
There is talk of overly high
pricesbeingpaidbyJapanese
companies in cross-border
deals, sometimes 20-30 per
centmorethanthenexthigh-
est private equity or strategic
bids. However in the recent
wave of activity, Japanese
companies tend to be avoid-
ing the non-core and trophy
assetsthatweresoughtinthe
1980-90s which later caused
problems.
For business owners glob-
ally, the strategic pressures of
Japanese companies create
an opportunity. If a business
owner is willing to actively
engage Japanese buyers and
work out the benefits to both
parties, then the owner may
beabletooptimisetheirbusi-
ness’s value in a transaction.
Jeff Smith is with Japan, Pinnacle
Inc
continued on page 28

3. TheSunday BusinessPost
March8,2015
28 M&ABriefing
BoomingTMTM&Aactivityseesrecordyearin2014
Druginnovationkeydriverofgrowingpharmaactivity
FurtherM&Aactivityinchemicalsindustryin2015
Cross-borderautomotivedealvolumesettoaccelerate
Infrastructureinvestmentoffersopportunitytodiversify
Investingintelecoms
Investinginpharma
Investinginchemicals
Investinginautomotive
Investingininfrastructure
By Dr Heiko Frank
M
any companies in
different indus-
triesarelookingto
make their mark
in the telecommunications,
mediaandtechnology(TMT)
sector.Mostofthemarepart-
neringwithcompaniesinthis
fieldtoadvancethenextgen-
eration of consumer service
and professional models –
especially for the new me-
ga-trend, Industry 4.0.
TMT is a rapidly changing
market,evenasonesegment’s
growth slows down or loses
market share, other key seg-
ments attract attention with
newly developed modes of
social networking, digital in-
teraction, connectivity and
new devices.
The continuously expand-
ing media and IT landscape
has become more and more
essential. Current key trends
exist in cloud computing,
digital media, IT infrastruc-
ture, 3D printing, wearables
and ‘The Internet of Things’.
Thesub-segmentsITsecurity,
cloudandmobilecomputing,
big data and IT outsourcing
were the main drivers in the
IT segment in 2014.
Inthefirstthreequartersof
2014, the TMT industry had
a total transaction volume of
nearly $500 billion – this is
the highest value of trans-
actions since 2001. TMT is
the leading sector with 19.8
per cent of the total value of
globalM&Atransactions.The
aggregatevaluefortechnolo-
gy M&A deals worldwide in
the third quarter of 2014 set a
new post-dotcom bubble era
record of $73.7 billion, which
is up 41 per cent from Q2.
Among the three sub-sec-
tors,telecommunicationswas
stilltheleadingsectorwith89
dealsvaluedat$236.3billion,
the highest value on record,
contributing 61.6 per cent of
thetotalofTMTinthefirstsix
months of 2014.
Important drivers for the
ongoing deal activity are the
continuously consolidating
TMT segment, followed by
thehighinterestfromforeign
potential investors, divesting
fromnon-corebusinessesand
raisingcapitaltoexpandbusi-
nessactivities.Recentimport-
ant deals include Comcast’s
acquisition of Time Warner
Cable, AT&T’s acquisition of
DirecTV, SAP’s acquisition of
Concur, Vodafone’s acqui-
sition of Kabel Deutschland
and Facebook’s acquisition
of WhatsApp for $19 billion.
North America had the
highestcontributionat62per
centtoglobalTMTM&Aactiv-
ity.Lastyearwasarecordone
for TMT M&A activities with
deals worth more than $500
billion. Strategic and institu-
tional investors feel that 2015
could be an even bigger year
with growing M&A volume
andanincreaseindealvalue.
We have ongoing robust
(mid-market) M&A activity,
with continued interest in
European technology com-
panies; especially as those
in Asia recognise the value
of European tech assets. The
fastpaceoftechnologychange
andthehighnumberofSMEs
within the sector is likely to
lead to further consolidation
opportunities.
IMAP is a leading global
M&A adviser with focus on
M&Atransactionsinthemid-
dle market.
Due to a long track record,
IMAP closed globally 120
transactionsintheTMTindus-
try within the past five years.
Supportedbyseveralindustry
experts, IMAP gained global
experience and recognised
several industry trends over
previous years.
This success factor helps
IMAPtobealeadingM&Aad-
visorwithinthisfastgrowing
market.
DrHeikoFrank–IMAPinGer-
many,IMAPM&AConsultantsAG
By Christoph Bieri
T
hepharmaceuticalin-
dustry,valuedaround
$700 billion, is in a
prolonged period of
reorganisation. Deal activ-
ity is high, with more than
600 transactions with a total
transaction volume of $240
billion in 2014, according to
IMAP’sstatistics.Dealactivity
increased from 2013 to 2014,
partlydrivenbycheapfinanc-
ing,butalsobyhighvaluations
ofpubliclytradedcompanies
and an accelerating pace of
strategic realignment.
Three long-term mac-
ro-drivers for transactions
can be distinguished. First,
the growing middle class-
es in emerging economies
have created substantial new
markets:China,India,Russia,
Latin America and, more re-
cently, Africa drive the phar-
maceuticalindustry’sgrowth
by volume. Being present in
thesemarketshasbecomean
imperative for pharmaceu-
tical companies with global
aspirations.Particularlyman-
ufacturers of generic drugs,
suchasSandoz(partofNovar-
tis), Teva, Mylan and Abbot,
which have had to perform
substantial acquisitions in
theseregionstoestablishtheir
presence.
Second, the cost of health-
careexpenditurehasreached
the sustainable maximum in
mature economies. Pharma-
ceuticals generate around 10
per cent of total healthcare
costs,andcontainmentofex-
penses for drugs has become
a major topic in Europe, Ja-
pan and, more recently, the
US. For one, various mecha-
nisms have been established
to ensure that generic drugs
compete on price only (and
not with their brands). This
has led to a substantial de-
crease of “branded generics’
which were common with
medium-sized pharmaceu-
tical companies (in our defi-
nition, below US$ 5 billion
sales).
On the other hand, reim-
bursement prices for newly
developed,proprietarydrugs
aresetrelativetotheirmedical
value-added versus existing
treatments. This demand, to-
getherwithincreasingregula-
tory scrutiny, have increased
the average amount of R&D
spendforeachsuccessfuldrug
launch to €3.5 billion. This
prohibits the ability that me-
dium-sizedcompanieshaveto
establishandmaintainmean-
ingful R&D programmes.
Third, medical advances
have been unlocking new
treatment opportunities,
particularly in oncology and
previously untreatable, rare
diseases. The pace of inno-
vation has been so fast that
the large, complex organisa-
tion of ‘big pharma’ typically
cannot keep up. The last de-
cade saw the establishment
of an ‘ecosystem’ comprising
small companies driving in-
novation,and‘bigpharma’as
acquirersorlicenseesoftheir
products.
Much of the current
deal-making in the phar-
maceutical industry involves
large pharmaceutical com-
panies willing to shell out
substantial amounts, some-
times hundreds of millions
or even billions, to acquire
small, loss-making firms
with a potentially lucrative
drug in development. The
most extreme example for
such a transaction was Gile-
ad’sacquisitionofPharmasset
in 2011 for $11.2 billion, for a
programmewhichresultedin
Sovaldi,theleadingtreatment
againsthepatitistypeC,acon-
dition which was previously
almost incurable.
Ireland, with its low cor-
porate tax rate, has become
a major hub for acquisitive
pharmaceutical companies.
Taxinversions,themovement
ofthetaxdomicileawayfrom
the US in the context of an
acquisition, have been a key
elementofmanytransactions
inthelasttwoyears.IfIreland
managestoattractmorethan
just letter boxes, the country
may profit from the vast re-
shuffling which takes place
in one of the industries with
the highest value generation.
Christoph Bieri works with
KurmannPartnersinSwitzerland
By Constantine Biller
T
he global chemicals
industryischaracter-
ised by ongoing cor-
poratereorganisation,
active private equity invest-
mentandmergersandacqui-
sitions (M&A) right across all
of the key geographies. The
Asianmarketcontinuestoof-
fer growth opportunities to
global players as demand in
China and other Asian coun-
tries remains robust. Europe
remains a key location for
innovation, driven in large
partbyeverstricterregulation
and end-market sophistica-
tion. Meanwhile, the US has
returned as a crucial location
inglobalproductionvolumes
as domestic players benefit
from the attractive energy
pricing offered by shale gas.
M&A activity in chemicals
maintained its upward tra-
jectory throughout 2014. The
competition from corporate
andprivateequitybiddersfor
the most prized assets also
drove up transaction multi-
ples.Manyglobalplayersused
their strong balance sheets
and profitability to make
transformational deals and
deliver top-line growth. For
example, Platform Speciality
ProductsCorpacquiredArysta
LifeScience Ltd from British
private equity firm Permira
for $3.5 billion. This followed
itsearlier$400millionacqui-
sition of Agriphar SA.
Other significant transac-
tions during the year were
Albemarle Corp’s $6.2 bil-
lionacquisitionofRockwood
Holdings Inc, Archer Daniels
Midlands Co’s $3.1 billion
acquisition of Wild Flavours
GmbH and INEOS AG’s $1.5
billion acquisition of the re-
maining 50 per cent stake
in Styrolution Group GmbH
from its joint-venture part-
nerBASFSE.Elsewhere,FMC
Corp completed the $1.5 bil-
lionacquisitionofCheminova
AS and subsequently sold its
alkali/soda ash business to
Tronox Ltd for $1.6 billion.
There was also significant
mid-market activity with
corporate buyers and private
equity sharing the spoils.
Fresh from its sale of Arysta
LifeScience,Permiraacquired
CABB GmbH for $1.1 billion
from Bridgepoint Capital.
Japanese group Kurita Water
Industries Inc acquired the
APWwatertreatmentchem-
icalsbusinessofIsraelChem-
icals Ltd for $316 million and
Lubrizol Corp, a subsidiary
of Berkshire Hathaway Inc,
acquiredWarwickChemicals
LtdfromBritishprivateequity
firm CBPE.
US investor Strategic Value
Partners sold Vestolit GmbH
to Mexichem for $293 mil-
lionandBritishprivateequity
firmCVCCapitalPartnerssold
FlintGroupLtdtoKochEquity
Development and Goldman
Sachs for $3 billion.
Theappetitefornewprivate
equity investment is also ev-
ident. The ongoing corporate
disposalprogrammespresent
private equity firms with the
opportunity to make signifi-
cant investments and create
platforms for further buy-
and-build activity. Exam-
ples of recent private equity
investment into the chemi-
cals industry include Rhone
Capital’s$355millionacquisi-
tionofASKChemicalsGmbH
fromAshlandIncandClariant
AG,AresManagement’s$431
million acquisition of Farrow
& Ball Ltd and LBO France’s
$359 million acquisition of
Chryso SA from Materis SA.
Through 2015 there will be
more M&As in the chemicals
industry as the large groups
look to realign their product
portfoliosandgeographiccov-
eragetowardsmoreprofitable
segments.Thiscanbeseenin
theactive$2.8billionpursuit
ofSikaAGbyCompagniedeSt
Gobain SA. At the same time,
the likes of Bayer AG, Dow
Chemical Co and DSM NV
willlookatnon-coredispos-
als, while mid-sized players
such as Arkema SA, Clariant
AG, Croda International plc,
Givaudan SA, Innospec Inc,
TessenderloNV,ValsparCorp
and WR Grace & Co remain
the subject of potential bid
activity.
ConstantineBiller,IMAPinUK,
Clearwater International UK
By Katja Diepelt
I
n the first half of 2014 the
global automotive deal
value was $27.5 billion,
the highest level since
2008. The global automotive
deal volume increased 13 per
cent in the first half of 2014
compared to 2013, while the
globalcross-sectorM&Avol-
ume increased by only 6 per
cent in same time. The in-
crease was mainly driven by
five mega-deals with a total
aggregated disclosed value
of $20.9 billion. Automotive
experts maintain a positive
outlook for automotive M&A
activities in the future.
In spite of political uncer-
tainties, economic volatility
and an increased number of
product recalls, the vehicle
assembly sector will con-
tinue to grow. In the period
from 2014 to 2020 the global
automotive assembly sector
is expected to grow by 4 per
cent.Thegrowthwillbemain-
lydrivenbytheinternational
expansion in developing the
key markets – Asia, Europe
and North America.
In the first half of 2014 the
components suppliers’ total
deal value climbed to $10.1
billion.Componentssuppliers
sawdealvolumerisefrom100
to 117 deals in the first half of
2014,representinganincrease
of17percentcomparedtothe
first half of 2013. The reason
for the smaller deal value is
caused by the fact that the
supplier industry is domi-
natedbysmallandmid-sized
transactions.
The automotive industry
willseeanincreasingnumber
of cross-border transactions
– inbound as well as out-
bound. Europe will continue
to be an attractive region for
M&Atransactions,influenced
by the current exchange rate
and technology know-how,
as well as the access to pre-
mium automobile manufac-
turers headquartered in Eu-
rope. The increasing number
of cross-border transactions
will be also driven by ‘fol-
low-the-customersstrategies’
whichforcesupplierstomove
abroad.
Theautomotivesupplierin-
dustry will see both financial
and trade buyers. The num-
ber of financial buyers’ M&A
activities increased by 39 per
centin2014comparedto2013.
Financialbuyersarefocusing
on components suppliers in
Asia and they further expect
consolidation on the tier 3 to
tier 4 level.
The automotive industry
has overcome challeng-
ing times in the past and it
seems that the market has
recovered from the econom-
ic downturn. The automotive
market expects to stay strong
and continue M&A activities.
M&A activities will be used
to improve technology, grow
thecustomerbaseandexpand
geographic presence.
M&Awillplayanincreasing
role in the development and
realisation of new technol-
ogies.
IMAP as a world leading
M&A adviser is mainly fo-
cusing on M&A activities in
the small and mid cap sector.
Supported by senior advisers
from the automotive indus-
try, IMAP is watching several
trends in the supplier indus-
try. During the last five years
IMAPsuccessfullyclosedover
35transactionsinthecompo-
nents supplier industry.
KatjaDiepeltworkswithIMAP
M&A Consultants AG
By Pelino Colaiacovo
B
ridges, power plants,
pipelines and sea-
ports: these are just a
few of the structures
that fall into the ‘infrastruc-
ture’ asset class. Typically,
‘infrastructure’ is defined
as the basic or fundamental
framework of an organisa-
tion, system, city, region or
country. From an investment
perspective, both econom-
ic infrastructure (highways,
sewer systems, electricity
networks, airports, etc) and
social infrastructure (such as
hospitals,universities,public
buildings,courthouses)canbe
attractive.
Infrastructure investments
share some characteristics
with both real estate and
long-term bonds. Like real
estate, infrastructure invest-
mentsaretypicallylong-lived
(with lifetimes measured in
decadesorlonger),andbring
withthemhighdevelopment
costs and construction risk;
major facilities often require
years of planning, design
and permitting, while con-
struction failures can lead to
enormouscostoverruns.Like
bonds, infrastructure usually
has well-defined and stable
returns over a long period of
time.
Traditionally, these types
offacilitieswereconstructed,
owned and managed either
bygovernmentsorverylarge
corporations,whichoftenre-
ceived a regulated licence to
operate or some other form
of government concession.
Individual investors seldom
had the ability to invest in
them at all, and if they did,
it was usually only by being
a shareholder in a broader
enterprise, such as a railway,
rather than as a direct owner
of a physical asset.
Over the past 20 years this
haschangeddramatically,and
there has been an explosion
of direct investment in ‘hard
assets’.Partly,thishasbeenthe
result of governments decid-
ing to privatise some of their
facilities (eg airports, ports,
railways, electricity distribu-
tionnetworks,powerstations,
water and sewage facilities),
and partly because of the de-
velopment of new technolo-
gies which governments de-
cided would be better served
by private investment (wind
and solar powered electricity
generation facilities, natural
gas liquefaction and regasifi-
cation plants, etc).
Today, investors in infra-
structurearealargeandvaried
group: hundreds of dedicat-
ed investment funds (both
publicly traded and private),
pensionandinsurancefunds,
sovereignwealthfunds,large
corporations,familytrustsand
individual investors.
Investors are attracted to
infrastructure investments
because they are very stable
over time, and don’t fluctu-
atewiththebroaderfinancial
market.Asaresult,theyhave
been variously characterised
as ‘patient capital’ or ‘defen-
siveinvestments’.Whilelarger
investmentportfoliosarestill
dominatedbyequityanddebt
investments in companies,
infrastructure has become a
critical component in strat-
egies for diversification and
the hedging of risks.
In the developed world,
new infrastructure oppor-
tunities arise because older
systems are wearing out or
becomingoverburdened.The
highwaysandpowerplantsof
the 20th century have to be
replacedorrebuiltforthe21st,
andthistimeitisinvestors,not
governments,whoarebehind
them.Inthedevelopingworld,
many of these systems are
being built for the first time,
and governments don’t have
the wherewithal to build and
financethem.IMAPmember
companies around the world
are helping clients invest in,
buy or sell infrastructure as-
sets, to the mutual benefit of
consumers, government and
investors.
PelinoColaiacovoiswithMorri-
son Park Advisors in Canada
TherehasbeenaspikeinM&Aactivityoverthepastyear.Butwhichsectorsaregettingthemost
attention?Here,fiveinternationalM&Aexpertsidentifya‘hot’industryandsectorfordeals