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The Real Bubble: Average M&A Multiple Hits 16x As First Half Volume Crosses Record $1 Trillion
While China is scrambling to launch a plunge protection team after every other initiative to support its burst stock market bubble has failed, one wonders when the real asset bubble will go pop: that, of course, is the global - but mostly US - merger and acquisition bubble.
Funded by wave after wave of cheap credit, according to DealLogic targeted M&A in the US just reached a half year record high of $1.03 trillion in 1H 2015, the first time on record any nation has broken the $1 trillion mark in a half year period.
2015 has been a relentless litany of records:
- According to DealLogic, a whopping 21 $10 billion + M&A deals have been announced so far in 2015, the highest half year activity and volume on record ($572.2bn). Of these, 17 are domestic US deals ($478.0 billion).
- US targeted M&A stands at $635.0bn in 2Q 2015, the highest quarterly total on record.
- May 2015 was the strongest month on record for announced US transactions, reaching $247.2bn, led by Charter Communications’ $79.6bn bid for Time Warner Cable, announced on May 26
- June wasn't worse: in the past month, Energy Transfer Equity launched a $70.6 billion hostile takeover attempt of natural gas supplier Williams Cos.
- US targeted Healthcare M&A has set new records in 1H 2015 with $293.6bn (537 deals), the highest half year volume on record and up 73% on 1H 2014 ($170.2bn). This continues the trend from 2014, which was the biggest year on record for Healthcare M&A globally and for the US ($429.0bn and $326.1bn, respectively)
- Technology ranks second for US targeted M&A with $143.8bn in 1H 2015, the highest half year total since 1H 2000 ($212.9bn). Announced on May 28, 2015, Avago Technologies’ proposed $36.6bn takeover of Semiconductor company Broadcom, is in line to be the largest Technology M&A deal on record
The second half is also starting off with a bang, and what appears set to be a massive consolidation in both the prorperty insurance space...
- on July 1 Ace announced it is buying fellow property and casualty insurere Chubb for more than $28 billion — the insurance industry’s biggest deal ever.
... and health insurance:
- On July 3 Aetna announced it would buy Humana in a $34.1 billion deal. The tie-up would create the No. 2 health-insurance company by revenue, pairing Humana’s Medicare franchise with Aetna’s core business of selling coverage to employers.
Next up: Obama's single-payor dream becomes a reality as the entire private health insurance sector consolidates.
And while management teams of both target and acquiring companies are transferring record amounts of funds from freshly minted bondholders to cashing out management teams, the biggest recurring winner needs no introduction: Goldman Sachs leads the US M&A advisor ranking in 2015 YTD with $434.7bn, followed by Morgan Stanley and JPMorgan, with $377.1bn and $320.1bn, respectively.
But the biggest stunner is the ridiculous surge in deal multiples. According to the FT, the average deal valuation soared to mind-blowing 16 times EBITDA, well above the previous high of 14.3 times in 2007.
As the FT further observes, this year “feels like the last days of Pompeii: everyone is wondering when will the volcano erupt”, said one senior banker referring to the ancient Roman city buried by ash in the 79AD eruption of Mount Vesuvius. “Nobody knows. It feels like we still have some leeway but it won’t last for ever.”
Funny: cause for months everyone was saying the same thing about China and how everyone was prepared for the bubble bursting. Only... nobody was.
How long until the market has to reprice everything and remove the M&A "premium" from stock prices , which if the datta above is correct, means at least 2-3x turns of EBITDA "valuation" would be wiped out overnight.
For now however, the music continues to play, Goldman continues to get paid, and Pompeii still hasn't erupted.
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China allowed foreigners inside the tent.
What did they think would happen?
vesuvius erupted, not pompeii
Where's the 4th of July greeting Tyler? HAPPY BIRTHDAY 'MERICA
There are bubbles everywhere, and they only way to keep this Keynesian pipe dream going is to keep those bubbles getting bigger. Unfortunately for the Keynesian faithful that is not possible with the zero lower bound which is why we have the calls to ban cash. That will open up the possibility of seriously negative rates, which will manage to blow the current bubbles into super bubbles. It will just be another can kicking mechanism though and won’t prevent the eventual crash. It will just take place from a higher level
That will be the day banks declare war on the people.
I LOVE M&A!!! Where else can you take two semi-fucked up companies and turn them into one really fucked up company.........
We need Paul Volcker back in as the Fed Head. He knows how to pop a bubble.
We don't pay anymore than 3.5x eibitda. That means walking away from a lot of deals. It also means the few acquisitions we do are always profitable.
How do you control the level of "cash outs" to redundant managers ?
He works for the mob.
Cashing out the old management team is merely a case of a little bit of concrete and a boat ridse. No big deal and totally deductible anyhow.
boobies
EBITDA
Why is it that every time I see this acronym, I get dyslexic and see 'EBT'...?
China used to have a wise policy of prohibiting short selling. It abandoned it. It would be interesting to learn at whose behest. In a command economy it should be possible to reinstate this prohibition, along with needed conrols on leverage in their stock market. China uses the level of required reserves in its central bank more actively than other countries. This would be another tool to restore equilibrium.
BTW, what ever happened to anti-trust enforcement in the US ?
O.T.
NYPD cop's fistfight with suspect caught on video
Worth watching! Damn police state.
Published time: July 04, 2015 05:38 http://on.rt.com/49ektb
Removing the M&A premium from stock prices would be bad for the market; stopping share buybacks would be a nightmare.
You forgot the (sarc). Dealings in treasury stock by corporate managements used to be controlled. What ever happened to that ?
I wonder if these Merger and Acquisitions numbers can be used a technical indicator for the stock market.
There was a peak in M&A in the first half of 2007. The market crashed about 1.5 years later.
There were lows in M&A in 2009, 2010, 20111. That was a great time to buy stocks.
We are currently in a peak in M&A. If this technical indicator is good, the market will be lower--at least 15 percent lower--1.5 years from now.
the view from the top...