Uncategorized
Merger activity remains robust; impact mixed for bonds
admin | September 28, 2018
This document is intended for institutional investors and is not subject to all of the independence and disclosure standards applicable to debt research reports prepared for retail investors.
The financials sector has led global growth in merger and acquisitions this year, with bank activity stronger as regulatory frictions have eased. Equity markets have reacted negatively on occasion, which can have repercussions for debt holders. We generally view such deals as credit neutral for banks and insurance issuers given regulatory limits on leverage and capital ratios.
Global M&A activity led by financials
Global M&A activity as measured by value is up 9.1% globally and up 27% in North America. The financials sector has led other industries year-to-date with deal volume of $930 billion, up 18% versus the year-earlier period. Among financial firms that have been the most active are real estate companies (↓ 3% @ $278 billion year-to-date) and REITs (↑ 124% @ $196 billion year-to-date). Remarkably, global M&A among banks is up 63% for the period with $124 billion of deals, which contrasts with years prior when regulatory friction was greater.
We expect insurers and asset managers will remain acquisitive as they look to scale-up efficiencies to overcome the stubbornly tight margins. There have been some notable insurance company acquisitions that have helped drive 20% higher volume over last year. In August, Hartford (HIG: Baa1/BBB+/wd) announced it will acquire Navigators Group for $2.1 billion in an all-cash deal. HIG said it has sufficient financial resources to pay for the deal on its own, but will explore debt capital markets funding (no equity) before the closing of the deal. HIG only has $4.2 billion of corporate bonds out, so a sizable issuance could put some weight on spreads. At the time of the announcement HIG shares traded off nearly 4% on the day, which highlights the risks for even seemingly positive deals. The negative consideration for bondholders is primarily the negative technicals, though execution risk over the long-term is potentially more meaningful.
While we do not expect any mega-deals among the large, systemically important banks, we expect there will be select activity among smaller regional and community banks. However, the prospect of an unfavorable equity market reaction – which occurred after Fifth Third announced it would acquire MB Financial in May, and when Synovus announced its acquisition of FCB Financial in July – may weigh on spreads for an acquisitive bank. Despite the negative reaction in the equity markets in some instances, we view such deals as generally credit-neutral for banks or insurance issuers given regulatory limits on leverage and capital ratios.
admin
john.killian@santander.us
1 (646) 776-7714
This material is intended only for institutional investors and does not carry all of the independence and disclosure standards of retail debt research reports. In the preparation of this material, the author may have consulted or otherwise discussed the matters referenced herein with one or more of SCM’s trading desks, any of which may have accumulated or otherwise taken a position, long or short, in any of the financial instruments discussed in or related to this material. Further, SCM may act as a market maker or principal dealer and may have proprietary interests that differ or conflict with the recipient hereof, in connection with any financial instrument discussed in or related to this material.
This message, including any attachments or links contained herein, is subject to important disclaimers, conditions, and disclosures regarding Electronic Communications, which you can find at https://portfolio-strategy.apsec.com/sancap-disclaimers-and-disclosures.
Important Disclaimers
Copyright © 2023 Santander US Capital Markets LLC and its affiliates (“SCM”). All rights reserved. SCM is a member of FINRA and SIPC. This material is intended for limited distribution to institutions only and is not publicly available. Any unauthorized use or disclosure is prohibited.
In making this material available, SCM (i) is not providing any advice to the recipient, including, without limitation, any advice as to investment, legal, accounting, tax and financial matters, (ii) is not acting as an advisor or fiduciary in respect of the recipient, (iii) is not making any predictions or projections and (iv) intends that any recipient to which SCM has provided this material is an “institutional investor” (as defined under applicable law and regulation, including FINRA Rule 4512 and that this material will not be disseminated, in whole or part, to any third party by the recipient.
The author of this material is an economist, desk strategist or trader. In the preparation of this material, the author may have consulted or otherwise discussed the matters referenced herein with one or more of SCM’s trading desks, any of which may have accumulated or otherwise taken a position, long or short, in any of the financial instruments discussed in or related to this material. Further, SCM or any of its affiliates may act as a market maker or principal dealer and may have proprietary interests that differ or conflict with the recipient hereof, in connection with any financial instrument discussed in or related to this material.
This material (i) has been prepared for information purposes only and does not constitute a solicitation or an offer to buy or sell any securities, related investments or other financial instruments, (ii) is neither research, a “research report” as commonly understood under the securities laws and regulations promulgated thereunder nor the product of a research department, (iii) or parts thereof may have been obtained from various sources, the reliability of which has not been verified and cannot be guaranteed by SCM, (iv) should not be reproduced or disclosed to any other person, without SCM’s prior consent and (v) is not intended for distribution in any jurisdiction in which its distribution would be prohibited.
In connection with this material, SCM (i) makes no representation or warranties as to the appropriateness or reliance for use in any transaction or as to the permissibility or legality of any financial instrument in any jurisdiction, (ii) believes the information in this material to be reliable, has not independently verified such information and makes no representation, express or implied, with regard to the accuracy or completeness of such information, (iii) accepts no responsibility or liability as to any reliance placed, or investment decision made, on the basis of such information by the recipient and (iv) does not undertake, and disclaims any duty to undertake, to update or to revise the information contained in this material.
Unless otherwise stated, the views, opinions, forecasts, valuations, or estimates contained in this material are those solely of the author, as of the date of publication of this material, and are subject to change without notice. The recipient of this material should make an independent evaluation of this information and make such other investigations as the recipient considers necessary (including obtaining independent financial advice), before transacting in any financial market or instrument discussed in or related to this material.
