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 [10]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
[11]
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 [12]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 [13]. 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 [14], the average deal valuation soared to mind-blowing 16 times EBITDA, well above the previous high of 14.3 times in 2007.
[15]
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.
