NEW YORK —
In September, Applied Materials, a California maker of semiconductor manufacturing equipment, agreed to acquire its rival, Tokyo Electron, in a deal valued at more than $9 billion. As an all-stock, cross-border deal, it was the kind of tricky merger that telegraphed executives’ confidence and an appetite to make even slightly risky deals.
“It was when the light bulb went on,” a senior dealmaker said.
While global dealmaking was basically flat for a fourth consecutive year, annual volume in the United States was up 11 percent in 2013 compared with the previous year, according to Thomson Reuters.
“There’s a feeling of a more stable backdrop that executives think will be with us for the foreseeable quarters,” said Blair W. Effron, cofounder of Centerview Partners, an independent investment bank. “I didn’t have a sense of that at the end of 2012 or 2011.”
And with markets buoyant thanks to relative stability in Washington and around the globe, as well as moderate growth from corporations, the bankers and lawyers that advise companies on mergers and acquisitions are more optimistic than they have been in years.
“From a macroeconomic perspective, we have a stronger economy, we have Congress behaving more responsibly, and we have all appearances of stability at the Fed,” said Scott A. Barshay, head of the corporate department at Cravath, Swaine & Moore, one of the top law firms on Wall Street. “CEOs can look forward and say, ‘I don’t see any near-term economic bumps.’ ”
This stability is leading executives and directors to return to the business of plotting transformative deals that might take months or even years to execute, and even longer to pay dividends.
“Boards are thinking about their goals not just tactically in a one-year 2014 increment, but more strategically for the longer term,” Effron said. “Companies are looking further down the field.”
Centerview worked on three of the biggest deals, advising H.J. Heinz on its $23 billion sale to 3G Capital and Berkshire Hathaway, General Electric on its sale of the remainder of NBCUniversal to Comcast for $16.7 billion, and Silver Lake Partners on its role in the buyout of Dell for $24.9 billion.
Other boutique investment banks like Centerview continued to secure advisory roles on the biggest deals of the year. LionTree Advisors, a small firm focusing on media deals, advised Liberty Global on its $16 billion deal for Virgin Media, while Moelis & Co. advised Omnicom on its $35.1 billion merger with Publicis, which was advised by Rothschild.
Even the largest deal of the year — Verizon Communication’s $130 billion purchase from Vodafone of the stake in Verizon Wireless it did not already own — had upstarts among the big banks like Goldman Sachs and JPMorgan Chase. Both Guggenheim Securities and Paul J. Taubman, the former Morgan Stanley banker who helped strike the original deal, advised Verizon.
Yet the big banks continued to advise on most deals, and collect the most fees. Goldman, followed by JPMorgan, led advisers in deals by volume both in the United States and worldwide last year. The two banks also collected the most fees for their work, earning an estimated $1.5 billion and $1.3 billion for their advisory roles, according to Dealogic.
While many factors encouraged merger activity, one phenomenon that once drove deals — activist investors — became something of a depressant.
Activists were once feared for their ability to shake up a company, spurring it to make deals with competitors or test the market for a sale.
To some degree that was still the case. Activists occasionally prodded smaller companies to sell themselves, and in other cases encouraged big conglomerates to dispose of noncore units. Nelson Peltz, for example, pushed for a big spinoff at DuPont.
But by and large, activists focused more on capital allocation than on deals. Moreover, many advisers said that executives now feared that spending money on a deal rather than returning it to shareholders would invite activist scrutiny.
Looking ahead to 2014, dealmakers say companies could be prompted to make deals for a number of reasons.
One is that with stock markets riding high, companies will probably feel pressure to demonstrate sustained growth to validate their share prices.
Certain sectors could also set off rounds of megadeals.
A spate of cable television deals is possible in 2014. Charter Communications is preparing to make an offer for Time Warner Cable. But Comcast, the nation’s largest cable operator, is considering a spoiler bid.
If either deal happens, it could kick off a wave of consolidation of both cable operators and cable networks.
“All year we’ve had strong equity markets, cheap debt, and ho-hum M&A,” Barshay said. “That usually doesn’t happen and it is finally starting to change. We’re seeing it in a spate of recent deals and we’re seeing it in the pipeline.”