Nick Train: Uptick in M&A signals greater confidence

Architas advent calendar – 6 December

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Continuing our countdown to Christmas, Nick Train reviews a productive period for global M&A that saw stand-out deals brokered in the tech and telecoms sectors.

According to the Bloomberg mergers and acquisitions (M&A) ticker, October saw 3,246 global corporate transactions amounting to an aggregate value of $595bn (£468bn). The deals were done at an average premium to market of 19%. That deal value makes October the fourth biggest month for M&A in history.

So far in 2016 global deals are running at a value of $4.1 trillion - a rate that, if maintained to year-end, would leave this year's M&A activity 10% lower than 2015's. Putting that drop in context though, 2015 was by some margin the biggest year ever for M&A - its $5.6 trillion taking out 2007's previous top of $4.9 trillion.

We think the above evidence means it is safe to assert that we are still in the midst of a productive period for global deal-making, with companies choosing this approach to respond to the threats and opportunities presented to them by globalisation and technology change.

Stand-out transactions

A review of October's stand-out transactions reveals what companies think is important in this period of financial history. In telecommunications and technology, for example, there were a couple of multi-billion dollar deals.

The $46bn merger of Qualcomm and NXP is apparently the biggest chip transaction yet. NXP is the number-one supplier of chips to the global automobile industry and a prime mover in the development of driverless cars. Qualcomm is looking to guarantee its participation in a new and enormous opportunity. Meanwhile, CenturyLink is buying Level 3 Communications for $24bn, to expand joint fibre-optic networks and high speed data services for corporate clients.

An obvious target for the new CenturyLink/Level 3 combination to shoot at is the giant incumbent, AT&T and therefore it is of little surprise to us to see AT&T itself kicking off the biggest deal of both this October and, indeed, 2016 so far - the proposed $85bn combination with Time Warner.  Struck at a 35% premium to Time Warner's undisturbed price, by the way.

Media focus

This last transaction is probably the one of most relevance to Lindsell Train's investment strategies.  We continue to believe the result of the creation of ever bigger and ambitious media distribution platforms - and let's be clear, that includes Amazon, Apple, Facebook and Google, as well as the fixed and mobile telephone networks - is that the value of truly unique media content carries on going up. And we look to own as much of that type of unique content as we can find.

Nick Train is joint founder and portfolio manager at Lindsell Train.


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