Dealmaking deluge due – Deloitte

BY Richard Summerfield

Domestic mergers and acquisitions (M&A) activity in the US is expected to pick up in 2018, following a fairly subdued 2017, according to a new report from Deloitte.

Deal activity in 2017 has been largely stymied by economic, political and regulatory uncertainty, as well as market volatility, and unrealistic valuations. However, according to respondents to Deloitte’s fifth M&A trends survey, many of these fears will begin to diminish moving forward, resulting in increased dealmaking activity and increased deal values.

Both in the number of deals and the size of transactions, Deloitte expects 2018 to be a bumper year for M&A. Of the 1000 US corporate dealmakers and private equity firms surveyed for ‘The State of the Deal: M&A Trends 2018’ report, around 68 percent of corporate executives and 76 percent of private equity leaders expect to see an increase in deal volume over the next 12 months. Additionally, most respondents believe deal size will either increase or stay the same in 2018, compared with deals brokered in 2017.

Technology-based dealmaking was recognised as the biggest potential driver of corporate M&A transactions, rising from 6 percent in the spring 2016 survey to 20 percent in this survey.

"There are strong signals that corporations and private equity firms are targeting bigger deals and anticipating brisker activity in 2018," said Russell Thomson, managing partner of Deloitte's US M&A services practice. "The appetite for technologies like machine learning, robotics, artificial intelligence and advanced analytics is large and growing. We're seeing some organisations buy smaller tech companies to enable strategic growth and others — typically companies well outside of the tech sector — actively looking to converge their businesses with tech companies to achieve marked transformation."

Away from the tech space, expanding customer bases in existing markets, and expanding and diversifying products and services, are set to be leading drivers of M&A deals. Among other positive factors, the Deloitte report notes that cash reserves are up significantly for potential acquirers, and that the primary intended use of that cash is for acquisitions.

Divestitures should also be a major focus in 2018. Seventy percent of survey respondents noted that their company plans to divest businesses next year. This rush of unit shedding will be driven by financing needs and strategy shifts.

Report: The state of the deal: M&A trends 2018

Toys R Us to close 26 UK stores putting 800 jobs at risk

BY Fraser Tennant

In another blow for the beleaguered toy retailer giant, Toys R Us has announced that it is to close 26 stores in the UK as part of a process to transform the business and make it fit to meet the evolving needs of customers in today’s UK retail market.

Under the UK Company Voluntary Arrangement (CVA) process, the toy chain has submitted a comprehensive operational and financial restructuring plan to its creditors and will solicit their approval of this plan over the coming weeks. 

If approved, the CVA would substantially reduce the UK company’s rental obligations and allow the company to move to a new, viable business model. The store closures, which may put more than 800 jobs at risk, are expected to commence in Spring 2018.

The toy retailer giant currently employs 3200 people in the UK.

The CVA process will not impact any Toys R Us entities or stakeholders outside the UK, including employees, vendors and customers. The company's approximately 1600 stores around the world, including all stores in the UK, are currently open for business and continuing to operate as usual.

“All of our stores across the UK remain open for business as normal through Christmas and well into the New Year,” said Steve Knights, managing director of Toys R Us UK. “Customers can also continue to shop online and there will be no changes to our returns policies or gift cards across this period.”

During 2018, the plan is for Toys R Us to make changes to the store estate as it moves to a new business model for future growth and profitability.

Mr Knights continued: “Our newer, smaller, more interactive stores are in the right shopping locations and are trading well, while our new website has generated significant growth in online and click-and-collect sales. But the warehouse style stores we opened in the 1980s and 1990s, while successful in the early days, are too big and expensive to run in the current retail environment.”

As a result of a heavy debt load and a consumer switch toward online shopping, in September 2017, Toys R Us voluntarily filed for Chapter 11 bankruptcy protection in the US and Canada.

Dave Brandon, chairman and chief executive of Toys R Us, concluded: “As we continued to work through the financial restructuring process, we hope to receive authorisation to restructure our UK lease obligations so that we will be better able to invest in our UK business.”

News: Toys R Us to shut 'at least' 26 UK stores

Wallet watchers: consumer spending under the spotlight in new report

BY Fraser Tennant

Providing businesses with deeper insights into consumer behaviour across the globe and pinpointing the drivers of choice that open and close the customer wallet is a new report released by KPMG.

In the inaugural ‘Me, My Life, My Wallet’ report, KPMG  analyses how the seismic influences of sociopolitical and economic shifts, accelerated mass adoption of new technologies and mobility are upending fundamental beliefs around what drives consumer behaviour.

The KPMG report also unveils a new customer engagement framework designed to help businesses understand the increasingly complex and multidimensional forces that influence decision making and preferences of today's and tomorrow's consumer. 

The framework is based on what KPMG calls the ‘Five Mys’ (which focus on five behavioural drivers – My Motivation, My Attention, My Connection, My Watch and My Wallet), Customer Wallet (fresh thinking on our changing relationship with money) and Generational Surfing (a new perspective on how those life event drifts can help businesses anticipate changing needs and preferences). The customer engagement framework goes deeper than just the analysis of data through a single lens.

From millennials to baby boomers, the framework helps businesses to assess the drivers of consumer decision making by looking at the multiple factors that influence people's everyday lives. Together, the three dimensions of the framework – behavioural, financial and demographic ─ help deliver a more comprehensive, 360-degree view of a consumer.

“Every day, new influences impact consumer motivation, behaviour and consumption and these forces are upending the conventional predictors of when, why and for what the customer wallet opens,” said Willy Kruh, global chair of KPMG's consumer and retail practice, and a partner with KPMG in Canada. “Transactional data, traditional market research and demographic profiles alone are proving inadequate to explain not just what customers are doing, but why.”

The report is based on a survey of 10,000 people across the US, UK, India and China,  using comprehensive, customer-focused research methodology.

Mr Kruh concluded: “It is time for an industry reset that re-orients us to understand what drives consumer engagement today. This calls for a new, intelligent, multi-dimensional model that uses predictive insights to help companies understand the customer journey and who their customers truly are.”

Report: Me, My Life, My Wallet

Time has come for Meredith

BY Richard Summerfield

After a number of failed attempts to complete a deal for the company, American media conglomerate Meredith Corporation has announced that it is to acquire Time Inc. in an all cash deal worth $2.8bn, including the assumption of debt and net of cash acquired.

Under the terms of the deal, Meredith will pay around $18.50 per Time share to acquire the company. The $18.50 per share price represents a 46 percent premium over Meredith’s closing price on 15 November 2017, the day prior to media reports about the transaction, and a 66 percent premium over the company’s 10-day volume weighted average trading price ending on that day.

Meredith had made a number of attempts to acquire Time Inc over the last four years but was unable to complete the deal, until now. Pending the customary closing conditions and regulatory approval, the transaction is expected to complete during the first quarter of 2018.

"We are creating a premier media company serving nearly 200 million American consumers across industry-leading digital, television, print, video, mobile, and social platforms positioned for growth," said Meredith chairman and chief executive Stephen M. Lacy. "We are adding the rich content-creation capabilities of some of the media industry’s strongest national brands to a powerful local television business that is generating record earnings, offering advertisers and marketers unparalleled reach to American adults. We are also creating a powerful digital media business with 170 million monthly unique visitors in the US and over 10 billion annual video views, enhancing Meredith’s leadership position in reaching millennials."

John Fahey, chairman of Time, said, "Time Inc.’s board of directors has unanimously determined that this all-cash transaction, and the immediate, certain value it provides, is in the best interests of the company and its shareholders. On behalf of the entire board, I thank Rich Battista for his strong and exemplary leadership. We also thank the management team and all Time Inc. employees, who together have made significant progress transforming one of the world’s most iconic and historically significant publishing companies into a leading multiplatform media enterprise."

The deal will be partly financed by a $650m investment by Koch Equity Development. Meredith will also be using $3.55bn in financing commitments obtained from a variety of lenders, the company said in a statement.

News: Meredith to buy U.S. publisher Time in Koch-backed deal

Global deal activity set to increase in 2018

BY Richard Summerfield

Merger and acquisition activity will increase in 2018 as global dealmakers recover their appetite for investments, according to Baker McKenzie’s 'Global Transactions Forecast 2018'.

As economic and political concerns subside, global M&A activity is expected to climb to around $3.2 trillion next year, with an increase in both M&A and IPO activity. The momentum created in the second half of 2017, as economic growth began to pick up in certain key markets, will roll over into 2018.

M&A activity in the consumer goods and finance industries will continue to generate the highest total deal values in 2018, the report suggests. The pharmaceutical and healthcare and technology and telecom sectors are also expected to rebound from a disappointing 2017 in which M&A activity is on course to slip to $2.5 trillion from $2.8 trillion last year.

“After a few soft patches in 2017 we have a more optimistic outlook for the global economy and dealmaking in 2018, as long as the brakes are not put any further on global free trade. We see an uplift in both M&A and IPO activity as dealmakers and investors gain greater confidence in the business prospects of acquisition targets and newly-listed businesses,” said Paul Rawlinson, global chair of Baker McKenzie. “However it’s not a done deal, with the threat of a Hard Brexit and a NAFTA collapse both still very real. Business will need to continue to make the case for liberal trade and investment frameworks.”

Global head of M&A at Baker McKenzie, Michael DeFranco, said, “2017 played out as we predicted and there have been a number of positive developments in the global economy that have led to the forecast for global M&A values in 2018 to be increased from our previous forecast of US$3 trillion to US$3.2 trillion. This would represent the 3rd highest yearly deal value since 2001 and the 2nd highest since the financial crisis in 2008.”

China's predicted GDP growth for 2018 has been revised from 5.9 to 6.2 percent.  The European GDP growth forecast has also been revised for 2018, up to 1.9 percent from 1.6 percent.

Beyond 2018, the report predicts that M&A values will drop to $2.9 trillion in 2019 and $2.4 trillion in 2020.

Report: Global Transactions Forecast 2018

©2001-2017 Financier Worldwide Ltd. All rights reserved.