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Rising Deal Values The median value of deals globally as a multiple of the target’s annual earnings before interest, tax, depreciation and amortization rose to 10.6 times in 2015, the highest since 2007, before a buyout boom ended with the global financial crisis. Combined with record deal volumes, this has raised concerns over whether the M&A cycle may be approaching its peak. But “this is not an M&A bubble,” said Luigi Rizzo, M&A head for Europe, the Middle East and Africa at Bank of America Corp (BAC.N). “The record value of deals this year was underpinned by the low cost of capital and the strength of the dollar.” A major difference from 2007 has been the absence of big leveraged buyouts. Private equity firms have mostly been sitting on the sidelines, preferring to sell companies to other strategic buyers, rather than trying to outbid them in auctions. A choppy junk debt market in the last few weeks has made it even more difficult for buyout firms to be competitive. In the United States, M&A has totaled $2.32 trillion so far in 2015, up 64 percent from the year-ago period. The United States accounted for 51 percent of worldwide deals, up from 43 percent a year ago. “M&A volumes relative to gross domestic product are just pushing average levels; we are not at the peak yet. The average M&A cycle lasts four to five years, and we are only now close to the third year,” said Robin Rankin, co-head of global M&A at Credit Suisse Group AG (CSGN.VX). Asia also had a record M&A year, with volumes at $1.05 trillion, up 58 percent year-to-date. M&A in Europe reached $879.6 billion, up 6 percent, in the strongest year-to-date period for since 2008. “Europe is at least two years behind the U.S. in the M&A cycle,” Rizzo of Bank of America said. “But going forward it will be the main story as telecoms and other key industries are set to consolidate.” Hostile Bids Hostile bids for companies have also been getting bigger. Canadian Pacific Railway Ltd (CP.TO) is pursuing a $36.7 billion takeover of U.S. peer Norfolk Southern Corp (NSC.N), while generic drug maker Perrigo Co Plc’s (PRGO.N) shareholders last month rejected a $26 billion hostile bid by Mylan NV (MYL.O). “One thing that we may see is more confidence in the boardroom of targets to resist hostile approaches until the end; in other words, an increase in the number of ‘hostile hostiles’ that never turn friendly,” said Igor Kirman, a partner at law firm Wachtell, Lipton, Rosen & Katz who represented Perrigo in its defense against Mylan. “The Perrigo defense against Mylan, the largest hostile deal ever to go the full distance, shows that a target can pursue a sound defensive strategy, even in the absence of showstopper defenses or litigation, and win,” Kirman added. Investment Banking Boom The dealmaking boom has, unsurprisingly, led to an investment banking bonanza. Fees from completed M&A advisory globally increased 5 percent year-to-date to $24.5 billion, estimates from Thomson Reuters and Freeman Consulting show. The M&A market could slacken in 2016 if the economy and political environment turn sour. For example, dealmakers have been speculating about whether a big rise interest rates could dampen dealmaking. “I don’t think interest rates alone will make a big difference in M&A; however, uncertainty in the financing markets and global political climate could be more of a concern than anything else,” said Eileen Nugent, global co-head of law firm Skadden, Arps, Slate, Meagher & Flom’s transactions practices. “But all of the traditional factors for a robust M&A market are still there and confidence is strong.” Reuters  ]]>