M&A activity stormed out of the gate in 2014, and if the first quarter is any indication, the rebound in deals forecast for this year will easily come to pass.
Last year was disappointing for mergers and acquisitions. Indeed, despite having one of the biggest deals of all time — Verizon’s (VZ) $130 billion buyout of Vodafone’s (VOD) Verizon Wireless stake — 2013 was a lackluster year for M&A.
Although the total dollar value of transactions rose in 2013, the year in M&A was marked by the lowest number of announced deals and completed deals since 2005, according to Trefis.
This year, however, M&A should see a rebound as companies — especially private equity — have large war chests and easy, cheap access to capital. That’s a big part of why the first quarter saw so much M&A.
Deals are expected to accelerate through the remainder of 2014, if only because M&A activity tends to spur even more deals. Companies sitting on the outside often feel the need to scramble for their own big plays to remain competitive.
A number of familiar names have made splashes with M&A in the first quarter. Here are 10 of the biggest or best-known deals so far this year, from small to large:
Biggest Deals of Q1, #10: Facebook and Oculus VR
Price: $2 billion
Facebook’s (FB) latest acquisition was small beer compared with its earlier purchase this year, but it still made a big splash — and left people scratching their heads.
Facebook paid $2 billon for Oculus VR, which makes a virtual reality headset. Although it gets amazing reviews, the Oculus Rift is intended for gaming, leading the market to wonder what the social network could possibly have in mind.
Facebook said it sees the virtual reality headset as a new communications platform allowing you to attend classes around the world or consult with your doctor face-to-face. We’ll see about that.
What’s not in doubt is the market for wearable computers is upon us, and it looks like FB wants in on the action.
Biggest Deals of Q1, #9: Lenovo (LNVGF) and IBM (IBM), Lenovo and Google
Price: $2.3 billion/$2.9 billion
Lenovo (LNVGF) is the world’s biggest maker of PCs, but that’s not much to brag about anymore. The PC market is slowly dying as consumers rely more and more on tablets, phablets and smartphones.
So expanding its offerings and branching out is something Lenovo pretty much has to do to avoid the fate that befell Dell. To that end, Lenovo struck a couple of deals with some of the biggest names in tech.
Lenovo made a deal to buy IBM’s (IBM) low-end server business for $2.3 billion, and paid $2.9 billion to acquire Motorola Mobility from Google. The Motorola acquisition is particularly interesting because it makes Lenovo the third-largest maker of smartphones behind Samsung (SSNLF) and Apple (AAPL).
Biggest Deals of Q1, #8: Google (GOOG) and Nest Labs
Price: $3.2 billion
Google (GOOG) always has lots of side projects in the air (Google Glass, anyone?) so paying $3.2 billion for Nest Labs isn’t really so far afield for the search giant.
At first blush, that seems like a ridiculous amount of money for a company that makes thermostats and has no profit. But Nest Labs makes a lot of sense when you look at what the next big thing is expected to be.
The so-called “Internet of things” is on the near horizon, where everything from your front door to your refrigerator will be online. Nest Labs is a gateway to this next big thing … which sounds like a perfect marriage of American laziness and new opportunities for hackers.
Biggest Deals of Q1, #7: Fiat (FIATY) and Chrysler
Price: $4.35 billion
Chrysler — the once-troubled and always storied American car company — is now 100% Italian. Fiat (FIATY) purchased the remaining 41% of Chrysler it didn’t already own in a deal that came to $4.35 billion That makes Fiat the world’s seventh-largest automaker.
It was a deal that everyone knew was going to happen; it was only a matter of time. Fiat shared ownership of Chrysler with the United Automobile Workers union when Chrysler emerged from bankruptcy in 2009 — and the union made no secret of its desire to sell.
Whether Fiat can make Chrysler grow and prosper is another matter entirely. The European car market has been in the dumps for years because of the dismal economy. At the same time, competition among car-markers in the U.S. hasn’t been this tough in a long time.
Biggest Deals of Q1, #6: Safeway (SWY) and Cerberus Capital Management
Price: $9 billion
Supermarkets have been struggling for years as Walmart (WMT) takes market share in the mass market and Whole Foods (WFM) steals higher-end customers. That has led to almost relentless consolidation, the latest example being a private equity takeout of Safeway (SWY) for more than $9 billion.
Not only does this deal led by Cerberus Capital Management mark the largest leveraged buyout of 2014 so far, but it brings together Safeway and competitor Albertsons, which Cerberus also controls.
Merging these two giant supermarket chains should generate substantial costs savings in procurement and distribution, making them much more competitive with Walmart — and whoever else emerges to eat their lunch.
Biggest Deals of Q1, #5: Liberty Global (LBTYA) and Ziggo
Price: $13.7 billion
Cable billionaire John Malone is a compulsive deal maker. He puts so many companies into play that some of them have got to stick — like the acquisition of the largest cable-TV company in the Netherlands.
Liberty Global (LBTYA) struck a deal to buy Ziggo for about $13.7 billion in cash and stock, and that’s become sort of par for the course for this media company. Indeed, LBTYA has been on a run for European assets for some time. Liberty Global bought British competitor Virgin Media last year for $16 billion, and also owns large media and telecommunications companies in Belgium and Germany.
As for the rest of 2014, the market can rest assured that Malone is not done looking for deals.
Biggest Deals of Q1, #4: Suntory (STBFY) and Beam (BEAM)
Price: $16 billion
Foreign companies have been buying American beer and booze makers for so long now that scooping up an icon hardly causes a peep. So when Japan’s Suntory (STBFY) agreed to shell out $13.6 billion (plus debt) for Beam (BEAM), it felt almost inevitable.
With a total valuation of $16 billion, the Suntory acquisition will be the third-largest acquisition by a Japanese company of a non-Japanese company, according to Thomson Reuters.
Jim Beam is one of the world’s most popular bourbons at a time when whiskey is becoming increasingly popular. Besides, roll ups in the wine, beer and booze business are common because there are so many cost savings to be found in distribution. That’s why the large companies have wide portfolios of brands.
Biggest Deals of Q1, #3: Facebook (FB) and WhatsApp
Price: $16 billion
Facebook (FB) has been on an acquisition spree, but nothing it has done has generated as much heat and light as its $16 billion purchase of WhatsApp.
Widely considered a blockbuster deal, the FB acquisition makes WhatsApp the largest-ever purchase of a venture capital-backed firm.
WhatsApp is a free text message service with 450 million users around the world. That makes it about twice as big as Twitter (TWTR), which has a market value 0f $26 billion.
By that yardstick, Facebook got a good deal.
Just as importantly, Facebook gets access to WhatsApp user data, bolsters its international presence and finds a way to engage with teens, many of whom are shunning the service.
Biggest Deals of Q1, #2: Actavis (ACT) and Forest Laboratories (FRX)
Price: $25 billion
Dealmaking in the pharmaceutical industry has been especially active, even in these past years of slow M&A. That makes a $25 billion deal like Actavis’ (ACT) purchase of Forest Laboratories (FRX) something less than a surprise.
It’s also hardly a surprise that activist investor Carl Icahn was involved in the deal. Carl Icahn owns an 11% in Forest Labs and was pushing for a deal.
No, Carl Icahn doesn’t always win — but he wins more often than he loses. That’s how Actavis, a maker of generic and over-the-counter drugs, came to buy Forest and its portfolio of medications for everything from irritable bowel syndrome to dementia.
Biggest Deals of Q1, #1: Comcast (CMCSA) and Time Warner Cable (TWC)
Price: $45 billion
Here’s a deal that will get extra-close scrutiny from regulators. Comcast (CMCSA) struck a deal to acquire Time Warner Cable (TWC) for more than $45 billion. If approved, the deal will tie together the two largest cable operators in the U.S.
Cable companies are seeking size and leverage in their negotiations with the people who create the programming because it’s getting so expensive. Sports programming, for example, costs a fortune for the cable companies to carry because it’s one of the few things people watch in real time.
That doesn’t automatically translate to cheaper fees for uses of Comcast-Time Warner Cable, which will keep any cost breaks it gets. After all, it’s hard to see how anything the cable industry does gives customers a break.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
