By Lauren Hirsch and Pamela Barbaglia
NEW YORK/LONDON (Reuters) - A telecommunications carrier seeks to become a TV network and movie studio owner. A major software company acquires one of the world's largest social networks. A smartphone maker snaps up a manufacturer of internet-connected audio speakers for cars. In 2016, mega deals became ever more transformative.
A drive by some of the world's largest corporations to find new avenues to expand in the face of anaemic economic growth led to major acquisitions in areas adjacent to their core business. This helped make 2016 the third-biggest year on record for mergers and acquisitions, trailing only 2015 and 2007.
"Companies are reinventing themselves, looking at their business in a new way with regards to how can they be a disrupter, and how they can prevent being disrupted - and this opens up deal flow" said Chris Ventresca, global co-head of M&A at JPMorgan Chase & Co (NYSE:JPM).
Among these transformative deals was this year's biggest - U.S. telecommunications company AT&T Inc's $85.4 billion (69.5 billion pounds) agreement to acquire media company Time Warner Inc (NYSE:TWX), the parent of CNN, TNT, HBO and the Warner Bros movie studio.
Other such deals included software behemoth Microsoft (NASDAQ:MSFT) Corp's $26.2 billion acquisition of professional social media network LinkedIn Corp (NYSE:LNKD), and Samsung Electronics (LON:0593xq) Co Ltd's $8 billion deal to buy car electronics maker Harman International Industries (NYSE:HAR).
"The pace at which technology is impacting industries and the convergence between more traditional industry sectors have never been more on the forefront of people's minds," said Cary Kochman, head of North American M&A at Citigroup Inc (NYSE:C).
SURPRISE EVENTS
Global M&A volume in 2016 fell 17 percent from last year's record to $3.6 trillion, while the number of deals remained almost flat at 44,688, according to preliminary Thomson Reuters data.
Despite heightened geopolitical uncertainty around the world, which was exacerbated by surprise events including Britain's vote to leave the European Union and the election of brash political outsider Donald Trump as U.S. president, cross-border M&A accounted for nearly 40 percent of total M&A activity, as companies continued to push for growth beyond their core markets.
"It's been impossible to look at a deal without considering political instability as a result of yet another referendum or election," said Luca Ferrari (NYSE:RACE), head of M&A in Europe, the Middle East and Africa at Bank of America Corp (NYSE:BAC).
German drug and crop chemical maker Bayer AG (DE:BAYGN) announced its $66 billion takeover of U.S. agrochemicals company Monsanto (NYSE:MON) Co, while ChemChina signed a $43 billion acquisition of Swiss seeds group Syngenta AG (SIX:SYNN), as consolidation in the sector intensified.
China outbound cross-border M&A, nearly a third of which was in the United States, totalled $221 billion, more than double the record of $109 billion set last year, as the Asian powerhouse pressed on with its grab for resources. Deal value of Chinese acquisitions in the United States jumped 841 percent this year over last.
"Asian companies have shown more determination in pursuing deals, and this is mainly driven by their need for global scale and acquiring expertise they don't have," said Gilberto Pozzi, co-head of global M&A at Goldman Sachs (NYSE:GS).
As always, several transactions were driven by a push to add scale or find cost synergies. These deals included Canadian gas pipeline operator Enbridge Inc's $28 billion purchase of Spectra Energy Corp (NYSE:SE) and the $65 billion-plus merger between industrial gases groups Linde AG (DE:LING) and Praxair Inc (NYSE:PX).
"Many of these deals were straight-out consolidation, a quest to get out there and solidify positioning," said Robin Rankin, co-head of global M&A at Credit Suisse (SIX:CSGN) Group AG.
REGULATORY RISK
To be sure, not all announced deals are guaranteed to close, as regulators and politicians have increased scrutiny following the latest wave of consolidation.
Pfizer Inc (NYSE:PFE) abandoned its $160 billion acquisition of Ireland-domiciled pharmaceutical peer Allergan plc, the biggest tax inversion ever attempted, after the U.S. Treasury unveiled new rules to curb inversions.
In another example, office supply chain Staples Inc (NASDAQ:SPLS) and smaller rival Office Depot Inc called off their planned $6.3 billion merger after a U.S. federal judge blocked it on antitrust concerns.
Both deals had been announced last year.
"In 2015, companies became very aggressive in pursuing strategic consolidation where they felt an imperative to do so, and in that context were willing to stretch the envelope from a transaction risk perspective," said Gary Posternack, global head of mergers & acquisitions at Barclays (LON:BARC) Plc.
The value of withdrawn M&A deals worldwide in 2016 stands at $804 billion, as more companies came up against such obstacles.
"You can't place all your bets on the largest deals, you are going to be wrong more often than not," said Marc-Anthony Hourihan, co-head of Americas M&A for UBS Group AG.
Not all attempted deals made it to the board room either, as the stock market rally raised valuation expectations and made it more difficult for buyers and sellers to agree on a price.
An attempt by U.S. social media company Twitter Inc (NYSE:TWTR) to explore a sale ended unsuccessfully, while U.S. industrial conglomerate United Technologies Corp (NYSE:UTX) rejected a $90.7 billion offer by rival aerospace supplier Honeywell International Inc (NYSE:HON).