M&A Adviser: Morgan Stanley

IFR Awards 2020
9 min read
Christopher Spink, Philip Scipio

Trusted adviser
During the upheavals prompted by the pandemic, clients needed a reliable adviser if they had to defend themselves from unwanted approaches or carry out opportunistic acquisitions that could transform their businesses. For being the first port of call throughout 2020’s storms, Morgan Stanley is IFR’s M&A Adviser of the Year.

M&A Adviser

When the coronavirus pandemic shut down the global economy in 2020, it also shuttered the market for M&A. But the best advisory bankers were busier than ever.

Morgan Stanley proved it was indeed the trusted adviser to its clients seeking counsel in the crisis, but then helped them to take advantage of opportunities when the market reopened.

Deal flow may have dried up in the second quarter of the year but it rebounded in the second half, when both the third and fourth quarters saw record levels of announced transactions of more than US$1trn in each three-month period.

“We saw a complete M&A cycle happen in a couple of months when it normally takes a couple of years,” said Tom Miles, co-head of M&A for the Americas at Morgan Stanley, alongside Brian Healy.*

Despite the second-half recovery, the total value of completed deals overall in 2020 fell 5.1% from a year earlier to US$3.03trn, according to Refinitiv data.

Of the top six advisers Morgan Stanley was the only one to increase its market share over the year, seeing the value of its completed deals rise 4.9% to US$867.6bn.

Familiar faces

From March until June most client conversations focused on sensitive issues such as securing liquidity and defence plans from opportunistic predators.

“Those are the kinds of conversations companies have with people they are familiar with,” said Miles.

Morgan Stanley, with its deep roster of clients, was well placed to do this as companies stuck with bankers they knew and trusted rather than hire new counsel over a videocall.

The firm nonetheless managed to attract new clients as well, as its prowess in certain areas and locations, as well as its exceptional focus on executing transactions, made potential dealmakers sit up and take notice.

It helped that the biggest drivers of the M&A market in 2020 – the tech and healthcare sectors, as well as financial sponsors – were all areas where Morgan Stanley has traditionally performed well.

A good example was virtual care provider Teladoc Health’s US$17.3bn merger with Livongo Health. Morgan Stanley was principal adviser to Livongo on the deal, which combines two high-growth companies to create a telemedicine giant that is expected to capitalise on demand for remote healthcare.

“It was a tremendous result for our client but also a tremendous deal from a sector perspective,” said Miles.

In the same area Morgan Stanley advised Analog Devices on its all-stock acquisition of Maxim, valuing the latter at around US$20bn when the deal was announced in July.

“In the tech space that was the first US$20bn deal announced since the start of the pandemic, a testament to our longstanding tech leadership,” said Miles.

The deal, which has yet to receive regulatory approval, had been predicted for some time but was put on hold until the conditions post-lockdown seemed just right to get it done.

Wrinkle free?

If Morgan Stanley’s bankers are looking younger when they emerge from pandemic lockdowns it won’t necessarily be because they are well rested. They have also become experts in Botox.

Over the past year the bank has completed two of the largest ever pharmaceutical acquisitions for clients: advising Bristol-Myers Squib on its US$93.4bn purchase of Celgene, which closed in late 2019, and AbbVie on its US$83.9bn acquisition of Botox-maker Allergan.

The Allergan deal highlighted one of Morgan Stanley’s secret weapons – its partnership with Japanese bank MUFG. Together, both banks committed US$38bn to finance the transaction, one of the biggest bridge loans ever made. The ability to put together financing on that scale combined with its M&A expertise allowed AbbVie to maintain a level of stealth rarely seen.

The Celgene deal also gave Morgan Stanley a chance to flex its muscles in activism defence after activist Starboard Value moved to block BMS’s proposed purchase.

“We advised on the buyside; led the financing; and also led the activist defence: we quickly and decisively put down the Starboard threat with facts and aggressive marketing of the deal to investors directly,” said Rob Kindler, the bank’s global head of M&A and vice-chairman.

“You can’t really do that unless you have world-class capability in all of those disciplines: sector, M&A financing and activism. Bristol didn’t need to turn to anyone other than our team.”

The bank continued working with United Technologies as that company executed a multi-year transformation. UTC followed its blockbuster acquisition of Rockwell Collins in 2018 by merging with Raytheon. Morgan Stanley advised the company on both transactions.

The US$89.8bn transaction took several months to put together. It happened as UTC was in the middle of spinning off unwanted businesses picked up from Rockwell, elevator maker Otis and heating and cooling company Carrier into independent, publicly traded companies.

Managing a complicated merger while spinning off two big portions of its business was a massive undertaking. Again, stealth was critical and the banks involved in the early phases were limited to Morgan Stanley advising UTC and Citigroup advising Raytheon.

Global scope

In Europe, the firm was also active in strategic industrial transformations, with a highlight being ThyssenKrupp’s €16.8bn sale of its elevators division. This turned into a hot auction between financial sponsors, maximising value for the German company.

Morgan Stanley also advised on the US$20.3bn investment in Indian social media enterprise Jio Platforms, part of Reliance Industries, by Facebook, Google and a host of other investors, ranging from specialist tech funds to sovereign wealth funds.

This transaction, the largest private placement ever by a technology company, was highly complex, particularly as it was carried out during the first wave of the coronavirus lockdowns, completing in July.

“We had to knit together tech, sponsors and sovereign wealth funds,” said Colm Donlon, head of M&A for Europe, the Middle East and Africa. “It was effectively 13 different deals with different investors using different valuations and structures for them all. It shows the reach of our tech franchise.”

The firm has been advising on Nvidia’s acquisition of chip designer Arm from Japan’s SoftBank for US$40bn, beating off many competitors for the prize. This deal, again highlighting Morgan Stanley’s tech strength, is now the subject of a lengthy regulatory investigation.

In another deal involving SoftBank, Morgan Stanley advised Deutsche Telekom on its US mobile subsidiary T-Mobile US’s US$58.7bn merger with Sprint, SoftBank’s biggest investment. The deal, spanning Asia, Europe and the US, showcased the firm’s global reach.

The M&A team also worked closely with the bank’s equity capital markets team, which was lead bookrunner on SoftBank’s secondary offering of its shareholding in the new T-Mobile US, which resulted from the merger.

Another innovative deal was acting for Saudi Aramco on its acquisition of a 70% stake in Saudi Basic Industries Corp from Saudi Arabia’s Public Investment Fund for US$69bn.

That was announced shortly after the oil company’s flotation and was the largest ever M&A transaction in the Middle East.

“Lots of people have expertise say in Australia or India but not in each market that we can continue to display year after year. We can offer clients a seamless service on a repeat basis,” said Donlon. “It’s also hard to win clients in the current environment if you are not one of the leading banks.”

Morgan Stanley itself made significant forays into M&A last year. In February, it made a well-timed pounce on E*Trade in an all-stock deal valuing the share dealer at US$13.1bn. That completed in October.

After barely catching breath the firm diversified further, offering US$7bn for fund manager Eaton Vance. That deal has yet to close but shows how having textbook in-house M&A expertise can be invaluable when executing your own strategic plans.

* This sentence was changed to update title and add co-head.

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