• Red Earth

Capitalising on Complexity. Thriving on uncertainty.

Neither instability in the EU, China’s slowing growth, US election jitters or Halloween are enough to scare off those with a clear growth vision.

Big ticket, M&A activity is surging with $500bn of blockbuster deals on the table in October. Last week Qualcomms bid $47bn for NXP. BAT offered $47bn to take control of Reynolds. GE Oil and Gas agreed on a merger with rival Baker Hughes. In one of Redstone's preferred sectors - telecoms - AT&T offered $109bn for Time Warner and CenturyLink announced a $25bn buyout of Level 3, a more substantial fellow telco.

What is behind this deal flow?

Megadeals are often postponed during times of political or economic uncertainty. However, with corporations sitting on record levels of cash, decent earnings, low-interest rates, and weak organic growth, there are clear fundamental drivers behind this. Those aside there are three big themes that stand out in these complex opportunities;

They were willing to wait.

Within the businesses that are involved in these transactions that Redstone knows best, there were considerable barriers that had to be overcome before there was a willingness to engage in a significant trade. As a result, these deals looked much more strategic and considered than the ego-driven transactions of the early 2000’s.

M&A as a cure. Or a vaccination.

The downside risks for most of these businesses are considerable. GE Oil and Reynolds are looking at medium-term margin compression as a result of depressed oil prices and need the scale to compete with Halliburton and Schlumberger. BAT need to hedge against regulatory pressure in developed markets and get into high-growth developing markets. AT&T is facing mounting structural changes across the telecoms industry. For them expanding beyond their roots as a pipes and distribution company is vital in making sure they don't fall victim to unpredictable swings in consumer prefe

rences and unanticipated changes in global distribution and monetisation models. All of these CEOs know that almost anyone can end up like Kodak,

Capitalising on Complexity. Thriving on uncertainty.

“I’ve never tried to think about politics in terms of when I time deals,” GE chief executive Jeff Immelt said in the FT of his $25bn deal to acquire Baker Hughes.

Business leaders like Jeff Immelt or Randall Stephenson, who was appointed in 2007, have come of age dealing with uncertainty and complexity as a daily reality. This new breed of CEO is good at managing in this environment, adept at focusing their businesses on the opportunities that matter despite the fact “the sky is falling in” daily. Being a disruption native like Randall Stephenson is a significant advantage in today’s world. Their ability to avoid freezing in the headlamps is a competitive advantage that only exists in this uncertain world.

It is now more than seven years since the US emerged from recession. We are in one of the most prolonged periods of straight US economic expansion ever. Perhaps it is wiser to get your deals done before things change again and we have to learn to get comfortable with a whole new set of complexities.

Or maybe that's precisely what these disruption natives are hoping.

Redstone is a family office and global advisor. Contact Mark Alexander at Redstone Advisory Partners on +44 (0) 207 193 1243.

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