Skip to main content

Merger Mania Will Subside in ’16

After a blistering first nine months of the year, the U.S. M&A market is expected to reach near-record levels in 2015. The pace is expected to cool down in 2016, though, as buyers digest the deals they have already struck.

According to national law firm Dykema Gossett’s 11th annual M&A Outlook Survey, the worldwide deal market is on pace to exceed $3 trillion by the end of 2015, the best showing since 2007.

But of the 147 CEOs and top executives surveyed by Dykema, about 37% expect the pace to slow in the next 12 months, down from 59% in 2014.

BIG-TIME CONCERNS

About 20% of respondents said they expected the market to weaken, compared to 9% in 2014. While most respondents expected no change in M&A next year, the concern is the most dealmakers have shown in the survey in years, according to Dykema.

That deal trepidation seems to mirror what several of the biggest M&A participants in the media sector have been saying for the past few months.

The time seems right for a breather: Just this year, Charter Communications snapped up Time Warner Cable for $78.7 billion, then grabbed Bright House Networks for another $10.4 billion. And European telecom giant Altice agreed to purchase a 70% interest in midsized cable operator Suddenlink Communications in May for $9.1 billion and then, less than four months later, pulled the trigger on a $17.7 billion deal for Cablevision Systems.

Charter, which had expected to close the Time Warner Cable and Bright House deals by the end of this year, now concedes that they will likely take until sometime in the first quarter of 2016.

On its third-quarter earnings call, CEO Tom Rutledge said Charter has obtained all of the financing for the deal, has received approvals from most of the franchise authorities and states involved, and is operationally ready to close by the end of the year. “But realistically, we think we’re looking at a first-quarter close,” he said.

Altice CEO Dexter Goei, who will be in charge of the telco’s burgeoning U.S. operations after the deals close in the fourth quarter of 2015 and first half of 2016, respectively, has said publicly that the company will take a respite from acquisitions while it digests its current U.S. targets.

“We owe it to our investors, both on the debt and equity side, to pause on the pace of the acquisitions, particularly on the sizable ones,” Goei told Bloomberg News in September.

Altice would change that stance if Cox Communications came on the block, Goei said.

A focus on finishing the deals at hand is understandable, Tom Vaughn, co-leader of Dykema’s M&A practice, said. “That’s my view, wait and see. More respondents are finding it harder to believe that record prices can be maintained.”

PRICES ARE HIGH

The biggest obstacle to getting deals done last year was valuation, Vaughn said. “People were priced out of the market.”

But capital is still available, he said, and the sentiment is that rates will remain relatively low.

“My outlook for the next year is not a significant cooling of the M&A market. It will remain at a steady pace,” Vaughn said.

High Hurdles

According to Dykema, the three most-common obstacles to deals are:

• Valuation

• Availablity of Quality Targets

• Buyer Competition

SOURCE : Dykema Gossett