The global M&A market has been a major driver of transactional activity in 2014 and into 2015. Despite major structural disruptions in the global economy—the collapse in energy prices, deflationary pressures, and credit stresses evident in a number of key markets—regional and cross-border M&A continued to flourish. In many cases, this activity has enabled corporations to not only escape low, slow growth in their domestic economies, but also establish successful global footprints.
Today’s regulators are more aggressive, the range of lenders more varied, and the options for financing more nuanced. However, as the past year has shown, the choices ahead provide some outstanding opportunities for growth and development in even the most difficult circumstances.
What are the critical trends to follow for inbound M&A in the U.S. over the next 12 months?
The U.S. inbound M&A market will continue to be robust, particularly in the manufacturing, consumer products, life sciences, and technology sectors. U.S. corporations are at the forefront of innovation, creating market-changing products and services and appealing to global consumer demand. Undaunted by the current strength of the U.S. dollar and increased regulatory scrutiny, non-domestic multinational corporations are actively pursuing strategic opportunities in these key sectors, relying on large cash balances and relatively inexpensive financing to fund such acquisitions.
What is the top trend to watch for M&A activity in Europe this year?
While 2014 was dominated by high value deals, 2015 will see continued growth in deal volume in Europe. Despite the slow pace of economic activity and increased political uncertainty, these factors are counterbalanced by low interest rates, falling oil prices, the ready availability of cash, and competitive financing opportunities. This will support companies seeking further sectoral consolidation. We particularly expect strong M&A activity in telecommunications, technology services, and healthcare.
What is the biggest area of opportunity in the U.S. capital markets in the year ahead?
Continued recovery of the U.S. markets will provide issuers with sustained access to capital during 2015. However, due to increasing demand for higher returns and continuing regulatory efforts, the biggest opportunities will be for those firms willing to provide investors with innovative investment alternatives.
What do you see as the most critical development for the Asian capital markets over the next 12 months?
Activities in the debt and equity capital markets in 2015 will be driven by further liberalization of China’s capital accounts and RMB internationalization. Hong Kong, as the main center for offshore bond issuances by Chinese companies, will see issuances from more diversified credits. We also expect the Shanghai-Hong Kong Stock Connect Scheme to be expanded as China opens up its equity market and integrates with major financial centers.
What recent development do you expect to have the most impact on European private equity in the year ahead?
2015 is expected to be a challenging year for European private equity, with the industry dominated by mid-sized transactions and especially carve-outs of branches of large groups. Similar to previous years, pharmaceuticals and healthcare, along with consumer goods and retail, are expected to be the most active industries. Additionally, active portfolio management and strategic build-up transactions, along with improved financing, will undoubtedly be the strongest performance drivers in the coming months, with IPOs as one of the possible exit options.
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We advised the banks providing debt financing for the US$8.7B acquisition of PetSmart, Inc., North America’s leading pet services retailer, by an investor consortium led by BC Partners. Citigroup Global Markets Inc., Barclays Bank PLC, Deutsche Bank Securities Inc., Nomura Securities International, Inc., Jefferies Finance LLC, RBC Capital Markets, and Macquarie Capital (USA) Inc. acted as joint lead arrangers and Citibank, N.A. served as administrative agent on a US$4.3B senior secured term loan and a US$750M senior secured ABL facility. We also represented Barclays Capital Inc., Citigroup Global Markets Inc., Deutsche Bank Securities Inc., Nomura Securities International, Inc., Jefferies LLC, RBC Capital Markets, LLC, Natixis Securities Americas LLC, and Macquarie Capital (USA) Inc. as initial purchasers in the US$1.9B senior notes offering by Argos Merger Sub Inc., which was merged into PetSmart at closing. This deal marked the largest leveraged buyout in 2014.
Increase in global value of M&A activity in 2014
Source: MergermarketWe advised JPMorgan Chase Bank, N.A. as the depositary bank on Fast Retailing Co., Ltd.’s secondary listing of Hong Kong depositary receipts (HDRs) on the Main Board of The Stock Exchange of Hong Kong Limited by way of introduction. Fast Retailing is the largest Japanese clothing retailer in Asia Pacific. Paul Hastings has advised J.P. Morgan on all HDR listings to date.
Our lawyers advised Italian lender UniCredit Group on the sale of a €1.9B portfolio of European non-performing loans to UK-based financial services private equity firm AnaCap Financial Partners. This was one of the largest transactions of its kind in Italy.
Partner David Shine named Dealmaker of the Year by The American Lawyer for his work advising Merck & Co. on the US$14.2B sale of its consumer care business