Executive Summaries » Billion Dollar Failures

Billion Dollar Failures

February 23, 2015

2014 was an active year for the M&A market due to low interest rates and available capital. Last year saw the highest level of successful M&A activity since the financial crisis, but big M&A busts made headlines too. Chiquita, Hillshire, and AbbiVie were just a few of the big-name companies to back out of deals. The failures, although a product of any robust M&A market, are ultimately consequences of new inversion regulations, high valuations and activist investors shaping the landscape.

In September 2014, the Treasury Department modified tax rules so that firms would not only pay more to merge with or acquire foreign companies, they would also face more red tape acquiring deal financing. As a result, some of the country’s largest pending deals collapsed and firms paid out millions in termination fees.

Record valuations made shareholders and boards more inclined to hold out for more attractive deal terms. Meanwhile activist investors emerged as the chief factor in the deal landscape. Although some activist investors have interests that align with long-term shareholders, others encourage risky transactions for short-term gains. Dollar Tree’s surprise takeover of Family Dollar, for example, was spearheaded primarily by activist investor Carl Icahn, despite mixed feelings from shareholders.

Investors should not be surprised to see record transaction levels through 2015. The momentum generated in today’s M&A market will be difficult to wind down, and many large firms facing anemic growth will see acquisitions as a means to quick profits.

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