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US M&A Roundup – Q1 2019

The M&A activities in the United States experienced an increase to USD 658.76B in Q1 from $472.5B in Q4, reflecting a 39.4% Q/Q increase, and a decrease from $815.28B in Q1 2018 due to greater market volatility, trade tension and the threat of Brexit.

M&A Drivers

A few drivers of M&A activity in Q1 include:

  • Large deals in the healthcare sector
  • Consolidation in fintech
  • Rise in mega-deals


Deals in healthcare has been the largest contributor to US M&A volume in Q1 2019. This was primarily driven by a few large deals such as Bristol-Myers Squibb Co’s offer to acquire Celgene Corp for $96.8bn, as well as Loxo Oncology’s acquisition of Eli Lilly & Co. for $6.6bn. Given capital availability, regulatory uncertainty and increased focus on the consumer, deal activity is expected to continue for the foreseeable future. It is worth noting that, however, deals are becoming more expensive with multiples increasing.

Payment Sector

Amid consolidation in the financial software and payments technology sectors, firms are looking to combine forces as they compete with newcomers seeking to disrupt the payment processing industry. In January, Fiserv acquired payment processor First Data in a deal valued at $22bn. Following that, Fidelity National Information Services (FIS) agreed to acquire payment processor Worldpay for about $35bn in March. This trend is likely to gain momentum as legacy vendors are looking to strengthen their businesses and this could be a red flag to banks, as they will need to seek out newer vendors who are focused on cutting-edge technologies that will shape the industry rather than merely acquiring existing products and services.


Despite slowdown fears, a plethora of mega deals with a deal value higher than $10bn has kept the deal volume elevated in the first three months of 2019. These include Bristol-Myer Squibb’s $90bn takeover of its rival Celgene and Fidelity National Information Services’ $43bn acquisition of payment processing company Worldpay. The key drivers for this trend include the fear from being disrupted by tech giants such as Amazon and Google, cheap debt and strategic motivation for growth. However, the number of deals has fallen significantly from a year ago, reflecting CEOs’ fears that an economic slowdown is on the horizon.

Notable Deals

Eli Lilly & Co Acquires Loxo Oncology Inc

  • Industry: Healthcare
  • Date Announced: 01/07/19
  • Size (USD): $6,973.93M
  • Consideration: 100% Cash
  • Target Advisors: Goldman Sachs (Financial), Fenwick & West LLP (Legal Counsel)
  • Acquirer Advisors: Deutsche Bank (Financial), McDermott Will & Emery (Legal Counsel), Weil Gotshal & Mange (Legal Counsel)

On January 7, 2019 the announcement was made that Eli Lilly Co will acquire Loxo Oncology valued at $8bn including the company’s shares outstanding and stock options. Lilly paid $235 a share, reflecting a 68% premium to Loxo Oncology’s share price as of closing stock price on January 4, and 48.16x TTM TV/Revenue multiple of 48.16x, higher than its peer median of 26.85x. Lilly’s tender offer for all outstanding shares of common stock expired on February 14, and at the expiration, 26,043,820 shares were tendered and not properly withdrawn, representing roughly 84% of the shares of Loxo Oncology common stock outstanding, and have been accepted for payment under the terms of the deal. The transaction makes sense for Eli Lilly as it has been seeking to make acquisitions and drug-license deals over the past year to expand its drug pipeline.

The combined company will allow Lilly to accelerate its oncology development plans to compete in the space with high level of competition and innovation. As a result of this acquisition, Lilly is provided with a pipeline of new investigational medicines such as LOXO-292 and LOXO-305 as well as Loxo’s FDA approved Vitrakvi, which is the leader in the field of TRK inhibitors, medicines that help shrink tumors by targeting a rare genetic anomaly. This deal marks Lilly’s shift from its traditional area of diabetes care. This comes after a late-year sell-off in global markets causing the valuations of smaller players to fall, thereby making them attractive targets.

Johnson & Johnson Acquires Auris Health

  • Industry: Healthcare
  • Date Announced: 02/13/19
  • Size (USD): $3,400MM
  • Consideration: 100% Cash
  • Target Advisors: Centerview Partners (Financial), Wachtell, Lipton, Rosen & Katz (Legal Counsel)
  • Acquirer Advisors: JP Morgan (Financial), Cravath Swaine & Moore (Legal Counsel)

On February 13, 2019 Johnson and Johnson announced its plans to acquire Auris Health Inc for USD 3,400mm in an all-cash transaction. The deal also includes additional payments of up to $2.35bn based on the achievement of certain predetermined milestones.

Since 2011 Auris had raised over $800mm in debt and equity financing and was valued at $2.2bn in the most recent Series D funding round. With the integration of Auris Health’s robotic platform technology, Johnson and Johnson will be able to expand its digital surgery portfolio across multiple surgical specialties and compete with market leader Intuitive Surgical.

J&J is divided into three main business segments: pharma, medical devices and consumer. The pharma business struggled with the new copycat drugs from European competitors and relatively strong dollar that impacted overseas sales. On top of that, J&J’s medical device business has also been lagging with sales falling 4% to $6.67bn in the 4Q of 2018. After the company vowed to improve its businesses through acquisitions and divestitures, it has since sold off certain businesses and spent approximately $40bn in acquisitions in the past two years from 2016 to 2018.

EQM Midstream Partners Acquires Eureka Midstream & Hornet Midstream

  • Industry: Energy
  • Date Announced: 03/14/19
  • Size (USD): $1,030MM
  • Consideration: Cash and Debt
  • Seller Advisors: Barclays (Financial), Morgan Stanley (Financial), Tudor, Pickering, Holt & Co. (Financial), Vinson & Elkin (Legal Counsel)
  • Acquirer Advisors: Citi (Financial), Kirkland & Ellis (Legal Counsel), Latham & Watkins (Legal)

On March 24, 2019 the announcement was made that Morgan Stanley Private Equity will sell 60% of Eureka Midstream Holdings to EQM Midstream Partners for a total consideration of $1,030mm, comprised of roughly $860mm in cash and $170mm of assumed pro-rata debt. Concurrently, EQM closed the private placement of $1.2bn of newly issued Series A Perpetual Convertible Preferred Units (Convertible Preferred Units). A portion of the net proceeds from the private placement was allocated to the cash purchase price of the acquisition, with the remaining net proceeds to be used for general purposes.

Eureka Midstream is a 305.7km long gas gathering header pipeline system that serves dry Utica and wet Marcellus production between Ohio and West Virginia. On the other hand, Hornet Midstream is a 24 km, high-pressure gathering system in West Virginia that extends to the Eureka Midstream pipeline. The volume mix of the two assets is 67% dry gas and 33% wet gas. According to EQM, the synergies that come from this acquisition are expected to generate $100 of EBITDA in the first twelve months. As per the company’s estimates, the acquired assets and associated water services will achieve over 20% annual EBITDA growth in the next several years. From an accretion perspective, the transaction is expected to be neutral to EQM distributable cash flow for the first 12 months and accretive thereafter. These new assets will complement EQM’s basin-leading gathering and transmission system, allowing the company to be the low-cost provider for gas transportation and for water handling.

League Table

Mergers & AcquisitionsUnderstanding a Merger and Understanding a Merger Model · Introduction to Hostile Takeovers and Unsolicited Bids · Sale and Leaseback Transactions in Investment Banking · Compiling a Buyers List in Investment Banking · Interview With A Mergers & Acquisitions Investment Banker – Part II · Interview with a Mergers & Acquisitions Investment Banker – Part I · Bid Pricing Strategy: Part II · Bid Pricing Strategy: Part I · Deal Protection in Mergers & Acquisitions · Investment Banking Bake-Off or Beauty Contest · Acquisition Finance: Equity Consideration · Acquisition Finance: Bullet Debt · Acquisition Finance: Bank Debt · M&A Process Walkthrough · Types of M&A Sell Side Processes · Investment Banking Teaser · Accretion/Dilution Analysis – Part IV: Synergies and Source of Funds for M&A · Accretion/Dilution Analysis – Part III: Using Debt for Acquisitions · Accretion/Dilution Analysis – Part II: Accretion/Dilution Math and Breakeven Premium · Accretion/Dilution Analysis – Part I: EPS, Earnings Yield and All-Stock Transactions · Purchasing a Company via Cash or Stock ·
Brian is a fourth year student studying actuarial science at the University of Waterloo. He was an analyst (Co-op) at OMERS Capital Markets in the Insurance Investment Strategy Group. Prior to that, he interned at Mercer as a summer analyst in the Financial Strategy Group. Outside of school and work, Brian enjoys playing squash and soccer.

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