11 Transformative M&A Deals You Should Care About

Canadian Pacific Railway

• Market value: $52.6 billion
• Target company: Kansas City Southern
• Deal value: $25.0 billion

Proponents of free trade will like Canadian Pacific Railway's (CP, $395.06) proposed $25 billion cash-and-stock purchase of Kansas City Southern (KSU). Together, the combined entity will have 20,000 miles of railroad, generate roughly $8.7 billion in annual revenue and employ almost 20,000 people.

The acquisition is the biggest M&A deal so far in 2021. It's also the second-biggest railroad merger ever, only falling behind Berkshire Hathaway's (BRK.B) purchase of Burlington Northern Santa Fe for $26.4 billion in 2010.

Interestingly, it will be the first rail network that connects Canada with the U.S. and Mexico, making Canadian Pacific Kansas City (CPKC) – the new name of the combined railroad – truly North American.

Canadian Pacific will pay $275 a share for KSU stock. That's a 23% premium based on Kansas City Southern's March 19, 2021, closing price. Kansas City Southern's shareholders will receive $90 in cash and 0.489 CP share for each common KSU share held.

CP shareholders will own 75% of the company, with Kansas City Southern shareholders owning the rest.

The combined entity will generate 53% of its freight revenue in Canada, 33% in the U.S. and 14% in Mexico. The companies expect to generate $780 million in annualized synergies within three years of closing the deal in mid-2022.

CP CEO Keith Creel will run Canadian Pacific Kansas City from its global headquarters in Calgary, Alberta.

Apollo Global Management

• Market value: $13.4 billion
• Target company: Athene Holding
• Deal value: $11.0 billion

Alternative asset manager Apollo Global Management (APO, $57.79) announced on March 8 that it would acquire fixed annuity provider Athene Holding (ATH) for $11 billion. The all-stock M&A transaction will see Athene shareholders receive 1.149 shares of Apollo stock for each ATH share held.

Apollo's shareholders will own 76% of the combined entity, with Athene's shareholders owning the rest. Apollo launched Athene in 2009. APO currently owns 35% of the retirement services company.

In 2020, Apollo Global Management stepped in to help keep struggling businesses afloat that suffered during the pandemic. In this regard, the merger has many suggesting the combined entity is the new Berkshire Hathaway, which gave an assist to companies during the 2008 financial crisis.

"No one has done what we are doing," says Marc Rowan, who will become CEO of the combined businesses, discussing the merits of the M&A deal. "Yes, there are elements of Berkshire Hathaway… but we are doing something in our own way with our own strategy and with our own rationale."

Apollo will move to a single class of voting stock with equal rights for each share as part of the transaction. The combined entity will have a pro forma market cap of $29 billion, likely qualifying it for inclusion in the S&P 500 Index.

It plans to pay an annual dividend of $1.60 per share, increasing it based on growth in the business.

Salesforce.com

• Market value: $198.8 billion
• Target company: Slack Technologies
• Deal value: $27.7 billion

Slack Technologies (WORK) shareholders got an early Christmas present last December when Marc Benioff-led Salesforce.com (CRM, $215.56) swooped in and offered to buy the enterprise communication platform company for $27.7 billion.

The cash-and-stock transaction sees Slack shareholders receive $26.79 in cash and 0.0776 share of CRM stock for each WORK share held. Salesforce's offer represents a 54% premium to Slack's share price before news of the merger and acquisition began to circulate last fall.

Salesforce is buying Slack to integrate its communication platform into its existing suite of cloud-based sales-related software. Together, it will provide the companies with a more well-rounded set of tools for serving their end-user customers.

"Together, Salesforce and Slack will shape the future of enterprise software and transform the way everyone works in the all-digital, work-from-anywhere world," said Benioff in a statement about the proposed transaction.

While Benioff has executed more than 60 acquisitions over the past 21 years, the Slack purchase is Salesforce's largest ever. The marriage gives CRM a leg up in its fight against Microsoft. And Slack will now have greater resources to go head-to-head with Microsoft Teams.

Benioff would like to see Salesforce.com's revenue hit $35 billion by fiscal 2024. The addition of Slack should add more than $1 billion in annual revenue by 2022.

CRM expects the transaction to close by July.

Square

• Market value: $100.5 billion
• Target company: Tidal
• Deal value: $302.0 million

M&A news that Square (SQ, $220.65) was buying a piece of Tidal, the music-streaming service owned by business mogul Jay-Z, first surfaced in December. On March 4, it became official with Square announcing that it would pay $297 million in cash and stock for majority control of Tidal, and in late April, the deal closed at a final price of $302 million.

Tidal will operate independently alongside Square's Seller and Cash App ecosystems, and Jay-Z will join Square's board. SQ does not expect Tidal to make an impact on sales or profits in 2021.

CEO Jack Dorsey believes that Square's entrepreneurial tools will help musicians support their work.

"I said from the beginning that Tidal was about more than just streaming music, and six years later, it has remained a platform that supports artists at every point in their careers," Jay-Z stated in the press release announcing the deal.

"Artists deserve better tools to assist them in their creative journey. Jack and I have had many discussions about Tidal's endless possibilities that have made me even more inspired about its future."

Jay-Z, whose real name is Shawn Carter, bought Tidal in early 2015 for $56 million.

Microsoft

• Market value: $1.8 trillion
• Target company: ZeniMax Media
• Deal value: $7.5 billion

The M&A approval process began in September with the announcement Microsoft (MSFT, $246.23) would acquire ZeniMax Media for $7.5 billion in cash. ZeniMax Media is the parent company of Bethesda Softworks, one of the world's largest privately owned developers of video games. Its franchise includes The Elder Scrolls and Fallout.

It ended March 8 after the European Union gave its blessing to Microsoft's bid for the gaming company. The deal brings Xbox's first-party games studios to 23, 10 more than Sony (SONY).

Bethesda's management will continue to operate the gaming business as a separate unit at Microsoft, just as LinkedIn and GitHub do.

Some consumers are worried the deal will reduce Bethesda games' availability on platforms other than Xbox. However, Xbox chief Phil Spencer maintains that the Xbox Game Pass subscription service launched in 2017 has virtually eliminated the need for exclusivity.

Both Microsoft and Bethesda believe that the most important part of Game Pass is providing gamers the opportunity to play whatever they want, wherever they want, whether it's on a console, PC, smartphone or anywhere else people play video games.

Snap

• Market value: $81.2 billion
• Target company: Fit Analytics
• Deal value: $124.4 million

Snap (SNAP, $53.29), the owner of social media platform Snapchat, confirmed on March 17 that it would buy Fit Analytics, a Berlin-based startup whose technology helps online shoppers find proper sizing for apparel and footwear purchases.

Also, the technology provides brands such as North Face and Patagonia with personalization tools and analytics to increase their e-commerce sales. More than 18,000 retailers already use Fit Analytics' technology.

"Our main focus going forward will be to scale the Fit Analytics business and work with Snap to grow their shopping platform, leveraging our technology and expertise," says Sebastian Schulze, co-founder and CEO of Fit Analytics. "Our teams will be jointly executing on next-gen shopping, fashion and style offerings."

The M&A move for SNAP seems to keep up with Pinterest (PINS) and Amazon.com in the rapidly growing "social shopping" segment of the e-commerce market. Snap CEO Evan Spiegel stated in the company's fourth-quarter 2020 conference call that there is a huge opportunity to innovate in e-commerce. No longer is online retail only about price and convenience. It's also about the experience.

Mergers and acquisitions such as scooping up Fit Analytics will help Snap deliver for its 265 million daily active users (DAUs). Investors should expect further purchases in this area in the future.

Originally called UPcload, Fit Analytics got its start in 2011.

S&P Global

• Market value: $91.5 billion
• Target company: IHS Markit
• Deal value: $44.5 billion

IHS Markit (INFO) announced on March 11 that its shareholders voted overwhelmingly to approve its sale to S&P Global (SPGI, $379.67) for $39 billion in equity and the assumption of $4.8 billion in debt.

The all-stock transaction will see stockholders receive 0.2838 SPGI share for every one held in INFO. SPGI shareholders will own 67.75% of the combined entity with IHS Markit shareholders owning the rest.

As a result, 76% of the combined company's $11.6 billion in estimated pro forma revenue will be recurring in nature, growing between 6.5% and 8% annually. On the bottom line, it expects to generate an additional 200 basis points of margin to its EBITA (earnings before interest, taxes and amortization) profit.

As for cost- and revenue-synergies, the new firm expects to find $830 million annually, which works out to an additional $680 million in EBITA. By 2023, SPGI expects to generate more than $5 billion in free cash flow, returning up to 85% of it through dividends and share repurchases.

The U.S. Department of Justice (DOJ) is likely to take a close look at the merger and acquisition despite the fact the two companies' businesses don't overlap too much.

On March 10, the DOJ made what's known as a second request to both SPGI and INFO. It's merely a request for more information. The parties continue to believe the merger will be completed at some point in the second half of 2021.

Amazon.com

• Market value: $1.6 trillion
• Target company: Wondery
• Deal value: $300.0 million (estimate only)

On the second to last day of 2020, Amazon.com (AMZN, $3,223.91) announced that it would buy innovative podcast publisher Wondery. Although no terms for the M&A activity were disclosed, The Wall Street Journal reported in early December that AMZN was in talks to buy Wondery for $300 million, possibly more.

AMZN believes that the addition of Wondery will add to Amazon Music's customer experience. The company's music platform only launched podcasts last September, and the acquisition of Wondery should accelerate its growth in this area.

Wondery's top-rated podcasts include Dirty John, Business Wars and The Shrink Next Door.

Investors might be aware of Amazon's growing advertising revenues. Analysts estimate that they'll grow to $26.1 billion this year and to $85.2 billion by 2026. According to Podtrac, Wondery is the fourth-largest U.S. podcast publisher with more than 10 million unique listeners every month.

There are several ways that Amazon.com can monetize its podcasts. One of them is through targeted advertising. Another could be to add a subscription offering that eliminates ads.

Any way you slice it, AMZN didn't buy Wondery because it loves its podcasts. It bought Wondery because it can help it continue to build the Amazon Prime ecosystem.

Amazon had $26 billion in free cash flow at the end of 2020. The company's acquisition of Wondery was a drop in the bucket from a monetary perspective, but oh, so strategic.

Apollo Global Management

• Market value: $13.4 billion
• Target company: Michaels Companies
• Deal value: $5.0 billion

One of the areas in which Apollo Global Management excels is private equity. That's why you're seeing it on this list a second time. The first transaction with Athene Holding is more of a traditional merger and acquisition. In contrast, the agreement to purchase Michaels Companies for $3.3 billion in equity and the assumption of $1.7 billion in debt is part of its job as a private equity investor.

Apollo paid $22 per share to acquire Michaels, a 47% premium to its share price the day before speculation appeared in the media about the purchase.

APO's private equity division has acquired more than 150 companies since its inception. It currently has $81 billion in assets under management (AUM) with its latest private equity fund, Fund IX, raising $24.7 billion in commitments from limited partner investors.

Some of Apollo's current investments in the consumer and retail area include Qdoba, the second-largest Mexican fast-casual restaurant in America. It also owns The Fresh Market, a North Carolina-based chain of gourmet grocery stores. Michaels joined this portfolio in mid-April.

Michaels reported fourth-quarter and full-year results in early March. In fiscal 2020, the craft store had revenues of $1.92 billion, same-store sales growth of 4.8% and adjusted net income of $347.0 million – the latter 7.2% higher than a year earlier.

APO is likely to ratchet up growth and then take it public in the next 3-5 years.

Fintech Acquisition Corp. V

• Market value: $384.9 million
• Target company: eToro
• Deal value: $9.6 billion

While Robinhood has filed confidentially with the U.S. Securities and Exchange Commission (SEC) to go public through a traditional initial public offering (IPO), Israeli rival eToro has chosen to go a different route through an M&A with special purpose acquisition company (SPAC) Fintech Acquisition Corp. V (FTCV, $11.26).

The merger values the combined businesses at $9.6 billion. Institutional investors such as Fidelity and Third Point will commit $650 million in additional investment to the deal. Post-merger, eToro will have $800 million in net cash on its balance sheet to fund future growth.

In 2020, eToro had $605 million in revenue, and it added more than 5 million users to its social investment network. It now has more than 1.2 million funded accounts. The company plans to launch U.S. stock trading in the second half of this year.

As a result of the merger, eToro shareholders will own 91% of the combined entity. The SPAC sponsor and shareholders and investors in the private placement will hold the rest.

eToro was founded in 2007. Its social trading network got its start three years later, introducing Bitcoin onto its platform in 2013. In 2008, eToro had just 174,000 registered users. Today, that's close to 19 million.

It estimates that the total addressable market for equities globally is $78 trillion, with digital platforms such as eToro accounting for just 20%.

FTCV shareholders must approve the combination before the merger can be completed.

AerCap Holdings

• Market value: $7.3 billion
• Target company: GE Capital Aviation Services (GECAS)
• Deal value: $30 billion

No one can accuse General Electric (GE) CEO Larry Culp of sitting on his hands since taking over the top job in October 2018. Since then, he's been remaking the industrial conglomerate, opting to focus on a few things it does well.

His latest imprint on the company was the March 12 announcement that GE was selling its aircraft leasing business to AerCap Holdings (AER, $55.99) for $30 billion. The deal allows GE to focus on its power, renewable energy, aviation and healthcare businesses.

In addition to receiving $24 billion in cash from AerCap, GE will own 46% of the combined entity of AER and GECAS. The aircraft leasing business is a part of GE Capital. Once the sale is completed, GE Capital will be folded into GE, and will no longer operate as a separate unit.

GE plans to use the proceeds along with existing cash to reduce its debt by $30 billion. That's 40% of its current debt. Since Culp's arrival, including its latest plans, GE will have cut its debt by more than $70 billion.

It will take a $3 billion non-cash charge in its first quarter of 2021 due to the M&A transaction.

The AerCap/GECAS combination creates an aircraft leasing behemoth that will use its scale to reduce its cost of capital while maintaining a diversified portfolio of customers. While it's likely to face intense scrutiny from regulators, the impact of COVID-19 and a flood of new aircraft-leasing firms in the last 10 years might soften their outlook on such a merger.