Anu Aiyengar heads J.P. Morgan’s M&A business in North America, here she talks about the global deal landscape
From an early age, Anu Aiyengar vowed to work hard toward the pursuit of a fulfilling career. In her native land, India, that usually meant medicine or engineering. But out of Smith College, where she obtained a degree in Economics, she took a different path, joining J.P. Morgan in 1999 as an Associate in Mergers & Acquisitions. Today, she is Head of M&A North America.
Did 2017 meet your M&A expectations?
After the US election in 2016, the market was exuberant with expectation that there would be meaningful regulatory reform. Our team tracks how many times the S&P 500 hit an all-time high, and the last time I checked it was something like 57 times in the first 11 months of 2017.
We had a Republican House, Republican Senate, Republican government, and a combination of very robust equity markets and low interest rates. All of that should have resulted in more M&A than you probably saw in 2017.
But having said that, I don’t really agree with some of the headlines which say M&A has been really down. Because if you look at the number of deals over $250 million in size, it’s been sort of flat. It’s really the mega-deals or the over-$10 billion deals that have been down. And even then it’s not massively down. Volume is down 6 percent off a pretty high year the previous year.
What is your outlook for 2018?
I think the big themes we saw in 2017 will continue in 2018. The elements of favorable equity markets, low volatility, and low interest rates should continue this year. If we are cooking up a recipe, three more ingredients would be tax reform, more clarity on the regulatory approval process and better timing.
The time that it takes to get a deal approved is increasing. In 2016, there was about $800 billion of withdrawn deals. In 2017 the amount was smaller but still large. And the ability to predict whether a particular deal will go through or not is less certain because it’s unclear who all the players are and what the regulatory approval process would be like.
And so those are two things you need because companies don’t want to announce a deal and just be left out there. They want to know, if we announce a deal, will it close and how long is it going take? Because if you announce a deal and then have to withdraw it, that’s not pleasant, there’s a franchise damage to companies.
If you look at it from a seller’s perspective, you’re watching your stock price go up, up, up, up, up, to a price you haven’t really seen before and maybe not even dreamt about. And you look at that and say, “So what should we do? Should we sit there and wait and say, ‘OK, maybe it’ll go more up more’? Or can I can deliver a certain value to the shareholders through a deal, or create a merger which is value creative?” Overall, I would say that potential sellers are not proactively saying, “Let me go run a sell-side process.” However, they are being responsive to informal outreach and inbound expressions of interest.
What is your outlook for cross-border deals?
Again, there are a lot of headlines about how cross-border deal volume has come down. But 2017 is actually higher than 2015; 2016 was higher still, really driven by China. And China had come down in 2017 as they were going through their governmental process. Outside of that, cross-border has actually gone up. And that trend could continue, because we are at a unique moment in time when pretty much every part of the world is growing. It’s not spectacular growth. But every region of the world is growing. And so in that environment– where you have an investor that is seeking growth, and all the regions in the world are growing – there is a desire to find growth in nontraditional places.
We’re very bullish on cross-border and we think we are very well positioned to benefit from that, because we have both long-standing local relationships around the world and the heft to do cross-border deals which are harder and more complex to get done.
How much potential is there for tax reform to spur deals?
If my tax rate falls to 20 percent, my value will be a lot higher. That could be a factor in deciding whether I will do M&A. Why sell at this price? Or has the market already factored tax reform in the stock? The expectation of tax reform is part of the reason you’ve seen the equity markets rise. Now, having absolute confirmation that it’s happening is better than expected to happen, you would think. But markets don’t always work that way. Sometimes they trade better on expectation rather than on reality.
Boeing recently did a large share repurchase and its stock went up. Do you think other companies will be giving more cash to shareholders and will that take away from the M&A market?
Most of them are doing it from found cash. It’s not – “Let me not do M&A and do this instead.” I think there were times, not the current times, when people may have thought about it that way. But the investor today wants growth. And the buyback strategy doesn’t spur growth.
Do you see tax inversions coming back under the Trump Administration?
No. If you have tax reform, and American businesses are allowed to be globally competitive, then what would be the need to pursue an inversion transaction?
Do clamors for protectionism in the West concern you?
To the contrary, in Europe, I think there’s a real desire to develop pan-European leaders. That actually promotes a lot of Europe-to-Europe deals, and we’ve seen an increase in European targeted volume in M&A in 2017. In 2017, you saw deals happen across the borders of Spain, Italy, France, Germany. There is a sense in Europe that, if we don’t do more pan-European deals, we’ll get left behind. Some people say that Brexit has brought the EU closer together. When somebody decides to walk away from something, maybe the people who want to be in it appreciate the value of it more.