by Scott Denne
Pricing pressure has driven the number of megadeals to a new high. With Charles Schwab’s $26bn pickup of rival online brokerage TD Ameritrade, 2019 has witnessed four transactions valued north of $20bn – the most ever in a single year, according to 451 Research‘s M&A KnowledgeBase. While the number of similarly sized deals has been on the rise for a couple of years now, the rationales have changed as defensive consolidations have spurred all of the largest prints this year.
Charles Schwab’s all-stock acquisition of a competitor comes as it and other online brokerages engage in a price war – Charles Schwab, E*Trade, TD Ameritrade and Interactive Brokers all saw their stock prices swoon at the start of October as they announced commission-free equity trading. That’s reminiscent of the other three $20bn-plus deals this year, where payment providers all reached for rivals in a bid to expand into adjacent specialties and battle margin pressure with greater scale.
And in all four of 2019’s $20bn+ deals, the buyers are using their stock to afford a rival that’s of a similar size. In today’s transaction, Charles Schwab is handing over a 31% stake in its business to TD America shareholders. Earlier this year, Fiserv gave up 42.5% of its business to buy First Data; Global Payments shelled out a 48% stake for TSYS; and FIS handed over 47% (plus $3.5bn in cash) to Worldpay’s owners. But while massive stock swaps are rising, strategic acquirers have otherwise reduced their appetite for large prints. The M&A KnowledgeBase shows that strategics have spent $1bn or more on just 56 companies this year, 19% fewer than they had at this time last year.
Figure 1: $20bn+ tech M&A