In the immediate aftermath of last summer’s Brexit vote, many thought a significant contraction in dealmaking would occur as market uncertainty and financial skepticism was expected to engulf potential European targets. But nearly six months after that political and economic development, a review of S&P Global Market Intelligence data indicates that deal value is on the ascent in several sectors - the deal value for announced European M&A post-Brexit exceeds that of announced European M&A transactions pre-Brexit.
In part, this gain has been fueled by several recently announced multi-billion dollar transactions. For example, French industrial firms Caisse des Depots Developpement SA and CNP Assurances SA (ENXTPA:CNP) signed a binding agreement to acquire a 49.9% stake in Paris-based electric utility RTE Reseau de Transport d'electricite from Electricite de France SA (ENXTPA:EDF) for $4.37 billion on December 14, 2016. Additionally, U.K. private equity firm Patron Capital Limited made an offer to acquire Punch Taverns plc (LSE:PUB) in a transaction valued at $2.47 billion on December 14, 2016, including assumed debt.
An examination of European M&A sector activity reveals that five of the eleven S&P 500 sectors are experiencing gains in deal value this year since the Brexit vote. Leading the way is information technology, which has seen a 293% increase in transaction value, aided by two big post-Brexit deals: QUALCOMM Incorporated’s (NasdaqGS:QCOM) definitive agreement to acquire Netherlands-based NXP Semiconductors NV (NasdaqGS:NXPI) for $47.6 billion on October 27, 2016, and Japan’s SoftBank Group Corp. (TSE:9984) agreement to acquire ARM Holdings plc (LSE:ARM) for $31.5 billion on July 18, 2016.
Another sector seeing big gains since Brexit is the energy sector, with nearly a 272% advance in deal value. The largest European M&A deal in this sector following the Brexit vote was Glencore Plc (LSE:GLEN), along with the Qatari sovereign wealth fund of Qatar Investment Authority, agreeing to acquire a 19.5% stake in Public Joint Stock Company Rosneft Oil Company (LSE:ROSN) from OJSC Rosneftegaz for $11.3 billion on December 7, 2016. Another big post-Brexit European energy deal was the Public Joint Stock Company Rosneft Oil Company (LSE:ROSN), agreeing to acquire a 50.1% stake in the Public Joint Stock Oil Company Bashneft (MISX:BANE) from the Federal Agency for State Property Management for approximately $7.1 billion on October 6, 2016.
Fueled by the fact that two of the five largest-ever announced U.S. M&A transactions in the energy sector have occurred in the past three months, the dollar value of energy sector M&A has reached a new annual record. According to data from S&P Global Market Intelligence, U.S. energy M&A deal value to date in 2016 stands at over $221 billion, topping the previous annual record of $219.1 billion set in 2014.
Most recently, Sunoco Logistics Partners L.P. (NYSE:SXL) (SXL) entered into a definitive agreement to acquire Energy Transfer Partners, L.P. (NYSE:ETP) (ETP) from Energy Transfer Equity, L.P. (NYSE:ETE) and other shareholders, in a transaction valued, with the inclusion of assumed liabilities, at $59.9 billion on November 20, 2016. That deal ranks as the third-largest ever U.S. energy MA& deals. This past September, Canadian energy transportation and distribution company Enbridge Inc. (TSX: ENB) entered into a definitive agreement to acquire Spectra Energy Corp. (NYSE:SE) in a deal valued at $47.5 billion on September 5, 2016. In terms of valuations for announced U.S. energy M&A deals, the average multiple based on a ratio of a target’s twelve-month trailing EBITDA to the announced deal value was 11.1x for deals occurring this year, compared to a ratio of 14.5x for deals announced in 2014, the previous record year.
This year’s results would have been even larger if not for the fact that the two largest-ever U.S. energy M&A deal cancellations occurred this year. Energy Transfer Equity, L.P. (NYSE:ETE) cancelled the $67.2 billion acquisition of Williams Companies, Inc. (NYSE:WMB) on June 29, 2016 in a transaction originally announced in June 2015. Also, Halliburton Company (NYSE:HAL) on April 30, 2016 cancelled the proposed $39.5 billion acquisition of Baker Hughes Incorporated (NYSE: BHI), which was initially announced in November 2014.
In terms of billion-dollar plus energy M&A deals, this year may fall short of the previous annual record. To date in 2016 there have been 24 announced U.S energy M&A deals of $1 billion or more. While that’s ahead of last year’s full count of 20 U.S. energy M&A deals of that dollar size, the current year seems headed to miss the record year of 2014 when 36 U.S. energy sector M&A deals of $1 billion or more were announced.