Slow Start to Year for M&A Gathers Force With June's Flood of Deals

(Bloomberg) -- A slow start to the year for mergers and acquisitions -- hamstrung by trade issues with China -- picked up in June with AbbVie Inc.'s planned purchase of Allergan Inc., United Technologies Corp.'s agreement to buy Raytheon Co. and Eldorado Resorts Inc.'s acquisition of Caesars Entertainment Corp.

“There was absolutely a chill in corporate suites across the world, the result of trade tensions to be solved in May not happening,” Brett Buckley, an event-driven strategist at WallachBeth Capital LLC, said in an interview. “We now have a number of deals being announced again very recently -- that has brought up that number of pending deals.”

Buckley said that until recently there were about 40 deals topping $500 million in value announced in the U.S so far this year, below the 55-70 transactions typical in an average first half since the financial crisis. With this recent flurry of announcements in the past month, the number of pending deals is back into the mid-50s.

“The Fed has now clearly paused with high expectations of an ease or two,” Buckley said. “That also gives cushion to decision making with respect to having to worry about those trade tensions.”

One of the big themes of the year has been the Federal Trade Commission's scrutiny of biotech deals, including Roche Holding AG's planned acquisition of Spark Therapeutics Inc. More recently, the antitrust agency ordered Bristol-Myers Squibb Co. to sell Celgene Corp.'s Otezla drug to gain approval for their deal.

“The story of 2019 is the FTC's involvement in new places,” Michael Samuels, an event-driven portfolio manager at Broome Street Capital, said in an interview. Forcing the sale of Otezla was “totally out of left field. I don't think anyone saw that coming.”

Robert Lynch, director of research at Westchester Capital, agreed.

“It does seem like they are taking a closer look into some of these deals,” Lynch said in an interview. “It remains to be seen whether the bar is now higher. We don't have enough information to know if they are looking deeper into the pipeline and if they are going to require more divestitures than past deals.”

Plenty of acquisitions remain outstanding, with some of the bigger ones including T-Mobile US Inc.'s purchase of Sprint Corp., Occidental Petroleum Corp. buying Anadarko Petroleum Corp., IBM Corp.'s purchase of Red Hat Inc., and BB&T Corp.'s combination with SunTrust Banks Inc.

The second half of the year may have gotten off to a better start after President Donald Trump's decision to delay trade restrictions against Huawei Technologies signaled a lessening of trade tensions. But traders are hesitant to say this will lead to a spate of new deals.

“It will get a little better, but not open up the floodgates given it's gotten better before and then got worse,” Odeon Capital analyst Vivek Channamsetty said in an interview. “Corporate boards will be worried if relations get murkier again.”

To contact the reporter on this story: Joshua Fineman in New York at jfineman@bloomberg.net

To contact the editors responsible for this story: Catherine Larkin at clarkin4@bloomberg.net, Scott Schnipper

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