Numbers of spins vs M&A

Part
01
of three
Part
01

Mergers and Acquisitions versus Spin Offs - United States

We were unable to provide the financial value of the total spin-offs conducted in the US as the information is not publicly available. However, we did find that there were 7,791 M&A's compared to the 29 spin-offs in the United States in 2018. We have provided the research strategies used to find this information along with our key findings below.

RESEARCH STRATEGY

To obtain information for the number of spin-offs and mergers & acquisitions (M&As) in the United States, we looked at several industrial and market reports from sites such as The Long Run Plan and Dialogic that contained information on the number of spin-offs and M&As in the U.S. respectively. Next, we looked for information on the companies involved in spin-offs and M&As and focused our search on large enterprises that employ 250 or more people with a minimum turnover of $200 million. Then, we used the example of an enterprise level company to find the success or failure of a deal; one for the spin-off and one for M&A category.

During our search, we looked at articles and press releases from media sites like BusinessWire, PRNewswire, The Business Journals, among others, but this strategy failed to yield any useful information. We believed this strategy to be worth a try since media sites usually report business-related information and might have the requested information in their press releases. However, we only saw reports of the announcement of spin-offs and the companies involved.

Also, we searched for the requested information on sites that trade the indices of spin-off companies to obtain the news reports for NMRK, AGE, ETRN, among other spin-offs in 2018. We aimed to look for the value of the total spin-offs in any particular exchange and its market share in the US, which we would have used to extrapolate the data for the total value of spin-off deals in the US in 2018. However, this information was not available. The closest information we found was regarding the total value of spin-off deals on the New York Stock Exchange (NYSE), but there was no info regarding its value in the US.

Lastly, we looked for the spin-off values of all the deals in the US for 2018, with a plan to add their values to arrive at a total figure. We searched company websites and press releases to see if there were any reported figures for spin-offs, but we were also unable to arrive at any actionable information. We only found data for the splitting of shares and the successes recorded after a spin-off.

MERGERS AND ACQUISITIONS VERSUS SPIN-OFFS — UNITED STATES

SPIN-OFFS

A report from The Long Run Plan shows that there were 29 spin-offs recorded in the United States in 2018.
EXAMPLE OF A LARGE ENTERPRISE LEVEL SPIN-OFF IN 2018
In 2018, Trinity Industries announced the separation of its infrastructure-related business, Arcosa, Inc. It is a manufacturer of infrastructure-related products and services with leading positions in construction, energy, and transportation markets. Both Trinity Industries and Arcosa have over 10,000+ employees, with estimated annual revenues of $2.5 billion and $1.5 billion, respectively.

SUCCESS
After the split, Trinity and Arcosa made significant strides to prove that the separation was for the best and it is successful as the two companies have aligned their strategic objectives and capital allocation with a tighter focus on their respective lines of business. Trinity made a bold investment in itself that caused a higher surge in cash flow, and Arcosa invested in a new core business to achieve attractive economies of scale.

MERGERS AND ACQUISITION (M&A)

In 2018, there were about 7,791 M&A deals with a value of $1.74 trillion in the US.

EXAMPLE OF A LARGE ENTERPRISE LEVEL M&A Cigna Group has more than 10,000 employees and an estimated annual revenue of $44.8 billion. It acquired Express Scripts for $68.5 billion, which according to USA Today is the most significant M&A of 2018.

SUCCESS
The acquisition delivers first-year double-digit earnings per share accretion and enhances Cigna’s revenue and earnings growth. It also expands the distribution of health services for employers, health plans, and government agencies. The merger promotes greater affordability for customers and drives a better relationship with health care providers while making health care simpler.

Other Findings:

The NYSE conducted 14 spin-offs in 2018 that amounted to $35 billion in market capitalization.
Part
02
of three
Part
02

Mergers and Acquisitions versus Spin Offs - EMEA

Deals involving larger targets are more likely to see their deals fail with 75-100% target sales quartiles having 15.2% of failure. Also, the size of the acquirer was a significant factor affecting the probability of deal success or failure: smaller acquirers more likely to fail with a deal failure rate of 18% - compared to the average of 16.1%. However, despite exhaustive research, details on the number of spin-offs and their relative financial value in the EMEA were not publicly available. Below is an outline of the research strategies as well as a deep dive into key findings.

Methodology

We started our research by looking for resources which directly and credibly provided the number of M&A's versus spin-offs and their relative financial value in the EMEA in 2018. In attempting to locate this answer, we conducted exhaustive research through market reports, statistic portals/databases, and trusted media articles. In pursuit of this strategy, we checked research websites like Research Gate, Industry Daily Observer, Business Wire, and PR News Wire. We also checked consulting websites such as Statista, Deloitte, KPMG, PitchBook, Accenture, and McKinsey, and media websites like Reuters, Forbes and The NYT.
Therefore, there doesn't appear to be much data or professional research publicly available on this specific topic. However, we found two reports from PitchBook providing some examples of successful and failed M&A deals in the European market. However, none of the websites provided any information specifically for the number of M&A's versus spin-offs and their relative financial value in the EMEA in 2018.
Further research was made to get more data referring to credible financial statistics portals/databases such as Reuters Finance, The Wall Street Journal Quotes, Yahoo Finance, the Market Watch, Stockopedia, and Capital Cube for any financial reports about the requested information. However, this approach also did not deliver any results.
As an alternative research approach, we tried to find the requested information by checking industry-related websites and blogs. We checked Deal Logic, Thomson Reuters, Global PMI Partners, and IMAA Institute among others. However, on the IMAA Institute, we found a report that provided the number and values of M&A broken down by regions. Other reports provided insights into the M&A failure rates and spin-off industry in Europe. Again, none of the websites provided any information specifically for the number of M&A's versus spin-offs and their relative financial value in the EMEA in 2018.
Next, we decided to expand the scope of the research to cover market reports, statistic portals/databases, and trusted media articles published earlier to the 24 months time frame with the aim to find any helpful data to calculate the projection of the market of M&A and spin-off in the EMEA in 2018. In order to find such information, we researched again for reports, articles, and statistics through market reports, statistic portals/databases, and trusted media articles. On Reuters, we found some examples of spin-offs in Europe for 2016.
Lastly, information about the number of M&A's versus spin-offs and their relative financial value in the EMEA in 2018 seems to be not publicly available. Despite a lack of data, we tried to triangulate the requested data by performing the following calculations.

Calculation

A report from the Institute for Mergers, Acquisitions, and Alliances (IMAA) provided the number and values of M&A broken down by regions:
Worldwide countries are grouped into the following business regions: EMEA (Europe, the Middle East, and Africa), NA (North America), LATAM (Latin America or South America) and APAC (Asia Pacific). Since we have data for region except for the EMEA we calculated it as follows:
The number of deals for the EMEA = global deals - NA deals - LATAM deals - APAC deals = 50,874-17,485-15,787-1,162 = 16,440.
However, this value is in contradictory with the number of deals for Europe due to the unclear definition of regions on which the breakdown is based.
Therefore, we tried to find an estimated value using the following calculation:
The number of deals for the EMEA = deals for Europe + deals for the Middle East and North Africa + deals for the Gulf Cooperation Council = 16,933+410+755 =18,098 deals.
The total value of deals for the EMEA = value for Europe + value for the Middle East and North Africa + value for the Gulf Cooperation Council = 1,129,500,000,000 + 45,000,000,000 + 75,600,000,000 = 1,250,100,000,000 or $1,250.1 billion or $1.25 trillion.
Note that these values are approximate since we were unable to find the number value of deals for Africa excluding North Africa.

Mergers and Acquisitions — EMEA

In 2018, there were 18,098 M&A deals which constituted $1.25 trillion in EMEA-targeted M&A volume. This volume is broken down by region as follows:


As of the first half of 2018, the announced M&A deals in the EMEA totaled $1.1 trillion from 8,070 deals, up 83% compared to the same period in 2017 which totaled only $590.7 billion. Among these deals, the media and entertainment sector led the marketplace with 605 deals in the first half of 2018. Other sectors were ranked as follows:
  • Media and Entertainment: $185.9 billion.
  • Consumer Staples: $143.3 billion.
  • Energy and Power: $141.2 billion.
  • Healthcare: $137.7 billion.
  • Industrials: $123.2 billion.
  • Telecommunications: $100.8 billion.
  • Financials: $64.1 billion.
  • High Technology: $45.7 billion.
  • Materials: $45.2 billion.
  • Real Estate: $43.2 billion.
  • Retail: $28.8 billion.
  • Consumer Products and Services: $22.0 billion.

Mergers and Acquisitions — Failure rates

According to a Global PMI Partners' report which analyzed 11,000 M&A transactions between 2010 and 2017, the "market cap decreased by more than 10 percent between the rumor/announcement and the closing dates" in 39% of the deals. Therefore, the value increased for only 34% of the deals. In addition, the value increased for 37.1% of deals in Western Europe while it increased for 22.6% of deals in Eastern Europe.

"The study mainly deals with the Value Recognition Index (VRI), calculated on the basis of the acquirer’s Market Capitalisation (MC) and the Transaction Price (TP) paid for the target company." The index is calculated as follows:
VRI (%) = [(MC2/(MC1+TP))-1]*100
  • MC1 = acquirer’s market capitalization the day prior to the rumor or announcement
  • TP = transaction price paid for the target
  • MC2 = market capitalization one week after the closing of the deal

According to Intra Links, the absolute size of the target (as measured by the target’s sales), the size of the acquirer (as measured by the acquirer’s sales), and the relative size of target and acquirer are the most significant predictor of the probability of deal failure.
Deals involving larger targets are more likely to see their deals fail with 75-100% target sales quartiles having 15.2% of failure. Also, the size of the acquirer was a significant factor affecting the probability of deal success or failure: smaller acquirers more likely to fail with a deal failure rate of 18% - compared to the average of 16.1%.
For acquisitions of private targets, the ratio of target sales to acquirer sales was the "most significant predictor of the probability of deal failure or success." Therefore, deals between larger targets relative to smaller acquirers were less likely to succeed or complete: for a ratio between 150% and 200% the failure rate was 13.5% while for a ratio more than 200% the failure rate was 8.3%.

Spin-off — EMEA

Recent examples of spin-offs in the EMEA include:

  • The Danish conglomerate, AP Moller-Maersk, has spun off its oil business with the aim to concentrate on the company's container shipping business which is earning $7.5 billion in the sale
  • The German companies E.ON and RWE have sold off parts of their portfolios
  • "Honeywell International has announced a spin-off of its transportation systems business and homes product portfolios, both of which will be two publicly traded companies."

Spin-off — Failure rates

According to a study done by The Edge and Deloitte which analyzed spin-off industry over 15 years, 40% of spin-offs in Europe did not generate a return in the first year after the separation with an average of 18% "return a year after the transaction, outperforming parents" by 3%. Globally, parents returned only 8% and spin-offs added 22%.


Lastly, the "market cap decreased by more than 10 percent between the rumor/announcement and the closing dates" in 39% of the M&A deals.
Part
03
of three
Part
03

Mergers and Acquisitions versus Spin Offs How 2019 is Shaping Up - EMEA

So far in 2019, there has been a 15% — 26% reduction in M&A deals from what was experienced during the same period in 2018. This may be said to be as a result of the speculation of the market economy in Europe and Africa at this time due to complications stemming from the Brexit deal. No data could be found to compare the number and value of spin-offs in 2018 and 2019.

METHODOLOGY

Our research commenced with us trying to find the number of M&As and spin-offs in the EMEA so far in 2019 in comparison with what was seen in 2018 and their comparative values. We focused only on enterprise-sized companies with large enterprises and that employ 250 or more people. We also searched for companies that had a minimum deal size of $100 million or a minimum turnover of $200 million. To do so, thorough research was conducted on trusted media sources, financial reports, and presented statistical data, checking research and financial websites such as PitchBook, Research Gate, Merger Market, Statista, Forbes and many more. As such, we did not find a lot of information on the overall topic. Neither did we find many examples of companies that employ 250 people or had deals over $100 million.

A report that we found in the Merger Market, however, highlighted the number of merger and acquisition deals which occurred in the first quarter of 2019 in comparison to that of 2018. We found that 5,085 deals were made in the first quarter of 2018, with a total value of $943.5 billion. In 2019 only 3,558 transactions have occurred so far in the first quarter of 2019, valuing at $801.5 billion. This illustrates a 15% drop in value. The article, however, did not include any information on spin-offs nor could we deduce from the information presented.

More research was carried out on materials presented by industry experts such as Thomson Reuters, Merger Market Financial Advisors, and Wall Street Journal. However, none could be found, but we noted that there was a 17% decrease in the M&A deals since December 2018 to April 2019 which could be as a result of fears of an economic “slow down” as well as the delayed Brexit.

We continued our research, examining the track that EMEA spin-offs took in 2018, utilizing research platforms such as Global Finance Magazine, PitchBook, and Merger Market. However, apart from general trends indicating that with the depreciating function of conglomerates in certain EMEA areas businesses would be forced to break apart into smaller entities at the hands of speculative investors, no direct number of spin-offs occurring in 2018 could be found to be compared to that of 2019.

We further examined globally recognized financial entities such as Forbes, Reuters, and Wall Street entities which were only able to provide us with some predicted future and past spin-offs and M&As which have taken place but again still no comparative data to the amounts and values of these deals in 2018 and 2019.

Having little success in finding information on M&As in 2018 and 2019, we decided to probe our research beyond the initial two-year time stamp given and again searched financial reports, media articles, market report statistics, and databases. In doing so many past spins offs and M&As were found dating back the last five years.

With our research, we concluded that there is no publicly available data on the total number of spin-offs and value of those deals for the years of 2018 and 2019. However, we attempted to triangulate the requested data as follows below.

CALCULATIONS:

From data provided by the IMAA institute
EMEA 2018 M&As

-Number of M&As16,933;
-Value — [1,004.31157 EUROS*0.89] = $1,129 billion (converted from Euros: 1 US=0.89 Euros)

Middle East & North Africa: 2018:
-Value — $141 billion

EMEA 2018:
-Total number of M&As16,933+755=17, 688;
-Total Value — $1,270 billion

EMEA 2018 Average per Month:
-Average number — 17,688/12=1474;

-Number of M&As1474*3=4,422;

Europe:
-Number of M&As- 3,092;
-Value — [125.26252*0.89] = $140.86 billion

Middle East & North Africa:
-Number of M&As158;
-Value: $96.43 billion

EMEA
-Total number 2019 – 3,250;
-Total Value 2019 — $237.29billion

According to our triangulations, we see both the estimated number of M&A deals and the value of these deals lower in 2019 than in 2018 at 4,422 deals compared to 3,250 and a value of $317.5 billion US compared to $237.29 billion respectively. [8] This indicates a reduction in the number of M&A deals so far in 2019 than was approximated for the same period in 2018.

Based on the above, the estimated decrease in number of M&As is:
(4422-3250)/4422 * 100 = 26.5%

Based on the above, the estimated decrease in value is:
($317.5 billion — $237.29 billion)/$317.5 billion * 100
= 25.3%

Past Merger & Acquisition Deals EMEA

In 2016 UK broadcasters “Sky” was supposed to be taken over by heavyweights 21st Century Fox. When this did not happen, the broadcasting group was placed in a bit of tug of war amongst global broadcasting companies such as Fox, Disney, and Comcast. In 2018 Comcast was seen to have taken part in a bid along with Fox in which Comcast won the UK based “Sky” with a $31 billion proposal. [9]

High tech French aircraft engineering group Safran, was seen to acquire the French-based “Zodiac Aerospace” at the cost of almost $10 billion EUROS. After stock value fluctuation both groups were forced to review the deal, agreeing to $7.7 billion, closing the deal in 2018. [9]

Milost Global Incorporated acquired Primewaterview Holdings Nigeria Ltd. in 2018 in one of the largest acquisition deals of 2018, amounting to a $1.1 billion leveraged buyout.

Expected Spin-Offs in 2019

In February 2019, metal manufacturing company Arconic announced that it would be separating itself into sections Engineered Products & Forgings and Global Rolled Products with one being spun off, in an attempt to increase the earnings of future stakeholders. By the end of 2018, the company noted and incurred revenue of $14 billion with GRP spin-off section bringing in revenue of upto $5.6 billion.

Engineering group Smith’s, based in Britain is said to spin off from their usual healthcare focus to zone in on industrial technology by the year 2020. This comes following the fall of the $9 million US merger deal with ICU Medical in September 2018. [6]

Expected M&A Deals in 2019

The china-based sporting company, Anta Sports, began the steps to acquire other sporting company, Amer, based out of Finland in a $5.6 billion EURO takeover in 2018. In the deal, Anta would take over 58% of the company Amer, becoming a majority holder, and absorb $1 billion worth of debt accrued by Amer. When completed, this deal stands to be the biggest Chinese acquisition in Europe to date.
OLX acquired 29.1% more of the stakes of the Russian classifieds platform Avito. With this additional acquisition, OLX now owns 99.6 % of the shares of Avito.

The National Wealth Fund of Qatar, the Qatar Investment Authority, and Airtel Africa, have been heard to be making a $200 million deal in recent times. Qatar Investment will invest the $200 million raised through an issue of the Airtel shares and is in an attempt to reduce the debt of the telecommunications company.

OTHER USEFUL INSIGHTS

During 2018, many deals which were started did not fully reach to fruition and were expected to finish during the first quarter of 2019. This would mean a good head start to the year in terms of M&A deals. M&As have however dropped by 15% decrease as of the first quarter of 2019 in M&A deals when compared to the deals made in the first quarter of 2018. Despite finding spin-offs that were expected in 2019, our extensive research showed no public findings of the number of spin-offs or their amounted financial value or any comparative data when looking at the M&As occurring in 2018 and 2019.

Sources
Sources

From Part 01
Quotes
  • "Trinity Industries, Inc. (NYSE: TRN) (“Trinity”), announced today that it has completed the separation of its infrastructure-related business, Arcosa, Inc. (“Arcosa”), a growth-oriented manufacturer of infrastructure-related products and services with leading positions in construction, energy, and transportation markets."
Quotes
  • "Spin-offs & Carve-outs: Conducted 14 spin-offs, totaling $35 billion in market capitalization, including nVent Electric PLC (NYSE:NVT), Resideo Technologies, Inc. (NYSE:REZI), Veoneer, Inc. (NYSE:VNE) and Wyndham Hotels & Resorts Inc (NYSE:WH), and four carve-out IPOs, including Arlo Technologies, Inc. (NYSE:ARLO), Elanco Animal Health Incorporated (NYSE:ELAN), HUYA Inc. (NYSE:HUYA) and Livent Corp. (NYSE: LTHM), raising a total of $2.2 billion in proceeds."
Quotes
  • "During 2018, US-targeted M&A volume reached a total of $1.74tn, via 7,791 deals."