Why Dealmaking Looks a Lot Like a Sedan-Filled Highway

The 2014 market for mergers and acquisitions was, in motoring terms, the equivalent of a traffic-free highway interrupted by the odd Ferrari or McLaren. The early stages of 2015 in contrast have seen the roads filling out with five-door family sedans and mid-range saloons.

Announced deal activity for the year to March 25 stood at $746 billion, up 9% from $685 billion in the same period of last year. That increase has come from deals valued between $1 billion and $20 billion, in sharp contrast to the early part of 2014 where just four mega deals made up more than a fifth of total activity.

The total value of deals valued between $1 billion to $5 billion increased 6.5%, up to $194.1 billion, while the total value of deals valued between $5 billion and $20 billion stands at $192.3 billion, close to double what it was last year.

The combined value of $20 billion plus deals, in contrast, is down 10% when the two time periods are compared. One of those, of course, is the blockbuster Kraft/Heinz deal, announced Tuesday.

Gilberto Pozzi, global co-head of M&A at Goldman Sachs Group Inc, said: “There have been fewer big headlines this year but the engine room – the $1 billion to $5 billion deals in Europe or $10 billion to $20 billion transactions in the US – has been quite active.”

Larry Hamdan, head of M&A Americas at Barclays PLC, said: “2014 was the return of the mega deal but in 2015 what we’re seeing is a real broadening of the M&A market into mid-cap deals. The core of the dialogue that we’re seeing now is very much in the mid-cap range of $5bn to $20bn. That is what we’re seeing in our backlog.”

Kasim Kutay, co-head of Europe at Moelis & Co, said: “Two or three blockbuster deals make the headlines but for a proper sustained pick-up you need to see regular activity in the mid-levels, and from our vantage point there is a discernible pick-up. We’re seeing a gradual pick-up in activity. It’s a slow gradual recovery rather than going from nothing to M&A fever.

For the whole of 2014, M&A activity was driven by big mergers, with total deal value rising 27% to $3.6 trillion on the previous year, while the number of deals was up just 8%.