US firms turn to European targets as home deals lag

Bloomberg

Uncertainty about President Donald Trump’s domestic policies and weak European currencies buoyed outbound dealmaking by US companies during the first quarter of the year.
US acquirers spent more than $70 billion on European targets in the three months to March 31, more than double the amount they dropped in the same period a year earlier and the most since 2007, according to data compiled by Bloomberg. Overall, $179.5 billion of deals involving companies in Europe were announced, the data show, a rise of 28 percent on 2016.
While the value of acquisitions of US targets still outstripped that at $245 billion, those deals fell five percent from the previous year, dragged lower by a paucity of the sort of high-value takeovers that have underpinned a record run of dealmaking since 2014.
“Companies are playing it pretty safe, trimming around the edges rather than going for the large, complex mergers,” said Michael Carr, global co-head of mergers and acquisitions at Goldman Sachs Group Inc. “But the desire is there and management teams are poised to initiate significant transactions — it’s just contingent on clarity from Washington.”
The largest deal announced during the quarter was Johnson & Johnson’s $29.9 billion acquisition of Swiss drugmaker Actelion Ltd. It was the only transaction inked worth more than $20 billion, compared to three such deals during the same period of 2016.
European targets are also looking more attractive as currency fluctuations help US buyers get more for their money. The pound has declined by about 16 percent against the dollar since June 23 as the UK commits to Brexit negotiations, while the euro has been hovering around parity with the dollar since the turn of the year.
Messages from the new US administration have been mixed. While Trump said during his campaign that AT&T Inc.’s proposed takeover of Time Warner Inc. should be blocked, his nomination to lead the Justice Department’s antitrust division has said he sees few hurdles to the deal. Of the five biggest deals announced just one, Reckitt Benckiser Group Plc’s $17.9 billion merger with Mead Johnson Nutrition Co., involved a US target. More notably still, the largest deal involving both a US buyer and seller was Mars Inc.’s $9.1 billion purchase of veterinary services company VCA Inc.
Peter Tague, co-head of global M&A at Citigroup Inc., said the strength of outbound dealmaking from the US suggests one thing companies are not overly concerned by are Trump’s more protectionist policy suggestions, which include taxing goods entering the country.
“What is going to be interesting is the disparity between rhetoric and what actually gets enacted,” Tague said. “Until policy is much more tangible in terms of scope and timing, lots of companies will spend time listening to Washington but few are going to hold their strategy hostage to it.”
Half the respondents to a recent Brunswick Group survey see the Trump administration as a positive for merger activity because of the potential for corporate tax reform, less stringent antitrust oversight and repatriation of offshore cash. Whether they’ll get their wishes is yet to be seen.