There’s no question that Wall Street has its swagger back, particularly when it comes to mergers and acquisitions. Indeed, the new year got off to an even hotter pace than last year, which was the best since before the financial crisis.
Through the first three months of the year, announced mergers and acquisitions totaled more than $800 billion. That’s an increase of $100 billion over the year-ago period and the highest level of deal activity since 2007.
The big deals in the first quarter comprised many of the usual suspects from years past. The pharmaceutical, healthcare and cable industries remain in consolidation mode — no surprise there — but plenty of other sectors saw some serious mergers and acquisitions, too.
Mega-deals popped up in everything from the consumer goods industry to the reinsurance sector. Not to be left out, the tech industry landed a couple of big deals on the top mergers and acquisitions list in the first quarter.
True, mergers and acquisitions usually line the pockets of investment bankers better than shareholders, but retail investors should still be thankful for them. Increased mergers and acquisitions activity signals confidence in the economy on the part of corporate management teams.
Dealmaking just doesn’t happen as much when companies are battening down the hatches, so mergers and acquisitions bode well for more market upside ahead despite the extended length of this bull market.
Here are the 10 biggest deals from the first three months of the year.
Top Mergers and Acquisitions: Ball Corp. and Rexam
Ball Corporation (NYSE:BLL) kept the consolidation ball rolling in the aluminum can business with a $6.7 billion deal for Rexam PLC (ADR) (OTCMKTS:REXMY). The combination of two of the world’s two largest can makers still has to pass regulatory hurdles, but there’s not too much overlap between them.
Ball is big in Southeast Asia and China, while Rexam is a major player in Russia and Northern Europe. Either way, this marriage of the Colorado-based Ball and London-based Rexam will be a giant in the industry.
With pro forma revenue of about $15 billion last year, the new company would have about 22,500 employees across five continents.
Top Mergers and Acquisitions: Intel and Altera
This one is still in the rumor stage, but when it comes to mergers and acquisitions, the rumor is usually true. It would also be too much of a win-win not to happen.
Intel Corporation (NASDAQ:INTC) is at a stage in its life where it needs to buy growth. Enter Altera Corporation (NASDAQ:ALTR), a leading manufacturer of reprogrammable chips used in things like wireless networks, servers and cars.
Intel would boost its margins by ensuring that its factories are never idle, while Altera would benefit from Intel’s vast sales operations.
And at an estimated $10 billion, the price is fair.
Top Mergers and Acquisitions: Valeant and Salix
You can’t get out of the top deals for pretty much any period without stepping in at least one pharmacy mega-merger. Valeant Pharmaceuticals Intl Inc (NYSE:VRX) struck a deal worth $10.1 billion to acquire Salix Pharmaceuticals, Ltd. (NASDAQ:SLXP) in the first quarter.
Salix’s most important product is a drug to treat irritable bowel syndrome. That suits Valeant just fine. It had a corporate version of the condition in its failed takeover of Allergan, Inc. (NYSE:AGN) last year.
This is the biggest deal in Valeant’s history and is projected to yield cost savings of $500 million annually. Just don’t expect any more mega-deals on the part of Valeant in 2015.
Top Mergers and Acquisitions: Charter Communications and Bright House
Consolidation in the cable industry continued apace in the first quarter as Charter Communications, Inc. (NASDAQ:CHTR) struck a deal to buy privately held Bright House Networks for $10.4 billion.
The biggest cable companies are in a sort of arms race to get bigger, and Charter failed to acquire Time Warner Cable (NYSE:TWC) last year. That prize went to Comcast Corporation (NASDAQ:CMCSA), and there’s no way Charter could stand pat with a tie-up that will become the biggest operator in the industry.
Bright House is the sixth-largest cable company. After bolting it onto Charter, the combined company will be comfortably in second place behind Comcast/TWC.
Top Mergers and Acquisitions: PartnerRe and Axis Capital
In a much less sexy corner of the market, reinsurance companies are undergoing their own wave of consolidation as they look to scale up and cut costs. As part of the trend, in the first quarter PartnerRe Ltd (NYSE:PRE) and Axis Capital Holdings Limited (NYSE:AXS) merged in a deal worth $11 billion.
The traditional reinsurers are increasingly under pressure from upstarts and new entrants into the field. The increased competition and cost pressure has the big reinsurers getting bigger as fast as they can.
The new company is supposed to deliver $200 million in pretax cost savings in the first 18 months after the deal closes.
Top Mergers and Acquisitions: NXP Semiconductors and Freescale
The Netherland’s own NXP Semiconductors NV (NASDAQ:NXPI) is riding the trend toward cars increasingly driving themselves. As a major supplier of chips to the automobile industry, it only makes sense to buy market share (and squeeze out some cost savings).
That’s the rationale behind NXP acquiring Freescale Semiconductor Ltd (NYSE:FSL) for $11.8 billion in cash and stock. Freescale also makes the chips used in cars to power all manner of new sensors and operations, so picking it up makes sense for NXP.
After all, the combined company will have $10 billion in annual sales and be a more formidable competitor in the market for analog chips.
Top Mergers and Acquisitions: UnitedHealth and Catamaran
As we noted recently, UnitedHealth Group Inc. (NYSE:UNH) might be the nation’s largest health insurer, but it still needs every edge it can get when negotiating with pharmaceutical companies over soaring prescription drug costs.
UNH — already a huge pharmacy benefits manager in its own right — is now set to become a mammoth with its $12.8 billion deal for Catamaran Corp (USA) (NASDAQ:CTRX).
Catamaran shareholders should be more than happy with the premium, while UNH stockholders can be content with the fact that the company doesn’t appear to have overpaid. Additionally, UNH says the acquisition will be accretive to next year’s earnings by 30 cents per share.
Top Mergers and Acquisitions: Pfizer and Hospira
The entire pharmaceutical industry is an orgy of mergers and acquisitions these days, and it was only a matter of time before Pfizer Inc. (NYSE:PFE) found a partner. It made no secret of the fact that it was looking to do a big deal after getting spurned by AstraZeneca plc (ADR (NYSE:AZN) last year.
As a result, Pfizer did what pharma companies do these days: It bought a biotech, paying $15.2 billion for Hospira, Inc. (NYSE:HSP).
Pfizer, looking to buy growth, appears to have alighted on a good candidate. Hospira develops biosimilars, and the Food and Drug Administration recently approved the first usage of biosimilars in human patients. Biosimilars are essentially a generic version of a pricier biotech drug.
Top Mergers and Acquisitions: AbbVie and Pharmacyclics
The price tag is an eye-opener, but then some analysts predict that this new cancer drug could one day become the best-selling medication for the disease. If true, that would make the purchase price a good deal.
Besides, like Pfizer, AbbVie was on the prowl for a big score after its bid for Shire PLC (ADR) (NASDAQ:SHPG) fell apart last year. With too many blockbusters drugs about to lose patent protection, the deals will just keep coming.
Top Mergers and Acquisitions: Kraft and Heinz
Warren Buffett partnered with Brazilian private equity firm 3G Capital last year to buy H.J. Heinz Company, and it was probably only a matter of time before the two struck again. After all, 3G is a serial acquirer of food companies.
Buffett loves big brands that have stood the test of time, and certainly both Kraft Foods Group Inc (NASDAQ:KRFT) and Heinz fit the description. This $40 billion merger will create the third-biggest food and beverage conglomerate in the world, with close to $30 billion in annual revenue.
The combined company is projected to save $1.7 billion annually in a couple of years through cost cuts and efficiencies of scale.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
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