Mergers and acquisitions never reached the fizzy levels experts predicted, but 2013 is still shaping up to be the best year for U.S. deal activity in five years.
Although most mergers and acquisitions ultimately fail to create value for shareholders down the road, it’s hard to say that the economy or markets are truly healthy without them — and that’s not just because investment bankers and corporate law firms need to get paid.
Companies don’t do much wheeling and dealing when markets and the economy are in a funk. A pickup in mergers and acquisitions activity is a sign of confidence — and animal spirits and investor psychology are as critical as anything to ensuring better times ahead.
Despite notching one of the biggest mergers and acquisitions on record, 2013 was hardly a whirlwind of deal activity, but it did pick up smartly.
U.S. mergers and acquisitions volume totaled $865.1 billion in the first nine months of 2013, according to Dealogic. That’s a 39% increase over the same period a year ago — and the highest nine-month total since 2008.
Some deals made huge splashes, while other passed by more quietly, but all of them contributed to the recovery in M&A. For the top 10 mergers acquisitions of 2013, according to FactSet, read on:
#10: Applied Materials (AMAT) Buys Tokyo Electron (TOELY)
Transaction Value: $10 billion
Applied Materials (AMAT) and Tokyo Electron (TOELY) are two of the biggest and most important suppliers to the semiconductor industry in the world, making the machines and technology that turns silicon wafers into computer chips.
Merging the No.1 and No. 3 manufacturers in the industry will create a giant with a market cap of about $30 billion, but more than anything, it’s a defensive move. Technical and financial pressures are squeezing margins and profits in an already mature industry.
Now that the two biggest players have tied the knot, we can expect even more mergers and acquisitions in this sector in 2014.
#9: Spectra Energy Partners (SEP) Buys Spectra Energy Corp.’s (SE) U.S. Transmission, Storage & Liquids Assets
Transaction Value: $9.8 billion
Income investors who love master limited partnerships were licking their chops when this deal was announced. Spectra Energy Partners’ (SEP) acquisition of assets from Spectra Energy Corp. (SE) transforms it into one of the largest fee-based MLPs in the country.
The deal is supposed to offer about $8 billion in organic growth potential by the end of the decade, and it diversifies SEP’s portfolio of energy, storage and transmission revenues.
Best of all for income seekers, SEP expects its annual distribution growth to hit 9% from now until 2015.
#8: American Airlines (AAMRQ) Buys US Airways (LCC)
Transaction Value: $11 billion
US Airways (LCC) had long been looking for a merger partner, but probably didn’t imagine it would find a deal quite like this. AMR Corp. (AAMRQ) — parent of American Airlines — emerged from bankruptcy with a deal in place to merge with US Airways, creating the world’s largest airline in the process.
When American Airlines filed for bankruptcy protection at the end of 2011, it knew that coming out of the process as a standalone company was a losing proposition. Enter US Airways — always a bridesmaid in the consolidation-crazy airline industry.
The deal gives American and US Airways a chance to compete against United Continental Holdings (UAL) and Delta Air Lines (DAL) — and a chance for American to pay back its creditors.
#7: Thermo Fisher Scientific (TMO) Buys Life Technologies (LIFE)
Transaction Value: $13 billion
There were a lot of mergers and acquisitions in the healthcare industry this year — especially in the various specialty subsectors — and no deal was bigger than this.
Thermo Fisher Scientific (TMO), the world’s largest maker of scientific and lab equipment, struck an agreement to buy genetic sequencing company Life Technologies (LIFE). The tie-up vaults Thermo into a prime position in the promising new field of personalized medicine.
Life Technologies is a huge prize because of the dramatic strides it’s making it cutting the time and costs for sequencing human DNA, which allows for the development of highly personal gene-based diagnostic tests and therapies.
#6: Liberty Global (LBTYA) Buys Virgin Media
Transaction Value: $16 billion
This deal didn’t make much of a splash on this side of the pond, but billionaire John Malone’s international cable business sure made waves in the U.K.’s telecom and cable market.
Liberty Global’s (LBTYA) deal to buy U.K. cable-TV and broadband provider Virgin Media created a much stronger rival to No. 1 British Sky Broadcasting.
And it’s already paying off, at least in terms of share-price performance. LBTYA is up 36% for the year-to-date, and up 17% since the Virgin Media deal closed in June.
#5: Publicis Groupe (PUBGY) Buys Omnicom Group (OMC)
Transaction Value: $17 billion
It was a complete and total shock when bitter rivals Publicis (PUBGY) and Omnicom (OMC) agreed to a so-called merger of equals to create the largest advertising agency holding company in the world.
Once the deal closes, the new company will be worth about $35 billion and have roughly $23 billion in annual revenue — and it will leave a vastly changed industry landscape.
Indeed, now that Omnicom and Publicis are hooking up, the Big Four players will become the Big Three, leaving just Omnicom-Publicis, WPP (WPPGY) and Interpublic Group (IPG).
#4: Comcast (CMCSA) Buys NBCUniversal Media from General Electric (GE)
Transaction Value: $17 billion
The sitcom 30 Rock sure had a lot of fun with this drawn-out deal — and it sure took long enough — but General Electric (GE) finally sold its media company to Kabletown, er, Comcast (CMCSA).
The storied NBC network and other entertainment properties are probably a better fit for a cable company than a conglomerate that makes everything from toaster ovens to turbine engines. But it remains to be seen whether NBCU has finally found a good home.
One thing that’s not in doubt is what the deal has done for CMCSA stock price. Comcast stock is up a market-beating 36% for the year-to-date.
#3: Michael Dell and Private Equity Firm Silverlake Buy Dell
Transaction Value: $25 billion
If you needed any evidence that mobile tech is upending the world, look no farther than Dell going private. Once the largest manufacturer of PCs on the planet, Dell just didn’t make much sense as a publicly traded company anymore.
On an unadjusted basis, Dell stock used to top $170 a share — but that was a long time ago. When founder Michael Dell and his private equity partners finally bought the company out — something Dell had been pursuing since February — they paid total consideration of just $13.88 a share.
When all was said and done (and after adjusting for splits and dividends), Dell sold at a 75% discount to its all-time high.
#2: Berkshire Hathaway (BRK.B) and 3G Partners Buy H.J. Heinz
Transaction Value: $23 billion
Berkshire Hathaway’s (BRK.B) Warren Buffett has had a hard time finding the big elephants he usually likes to hunt, so he must have been very pleased to buy ketchup-maker H.J. Heinz with the help of a private equity partner.
When the news hit, it also fueled a lot of (ultimately false) hope that 2013 would be a banner year for mergers and acquisitions. But that didn’t pan out. Sure, the M&A numbers are the best they’ve been in five years, but they’re still well below all-time highs.
Regardless, it’s always good for market psychology when the Oracle of Omaha goes shopping, and the Heinz deal was a nice vote of confidence early in 2013.
#1: Verizon (VZ) Buys Out Verizon Wireless Stake from Vodafone (VOD)
Transaction Value: $130 billion
The biggest deal of the year — and one of the biggest of all time — was Verizon’s (VZ) agreement to buy out Vodafone’s (VOD) 45% stake in Verizon Wireless.
More than a decade in the making, the deal’s final price tag makes it the third-largest corporate transaction of all time, behind only AOL’s (AOL) merger with Time Warner (TWX), and Vodafone AirTouch’s takeover of Germany’s Mannesmann.
When it comes to mergers and acquisitions, this one looks like a sure winner for VZ shareholders. Even if growth is hard to come by in the saturated mobile market, Verizon Wireless is an absolute cash cow.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.