Corporate Financing Analysis - US Share Buybacks Losing Their Appeal - 23 OCT 2017

With US equity valuations sky high, share buyback programmes have lost some of their appeal in 2017, and the market is on course for its second consecutive annual decline in deal value this year. While this has not stopped such activity by boardrooms altogether, the corporate practise of buying back outstanding stock, which has been popular in the aftermath of the global financial crisis, has certainly being been slowing this year. Were it not for the successful launch of a few bumper deals which have putting a gloss on the y-t-d numbers, the y-o-y downturn in activity would have been even greater.

According to data from Zephyr, a Bureau van Dijk product, buyback activity has tallied USD199,893mn across 557 transactions in the 2017 y-t-d period. This compares unfavourably with the USD255,373mn from 545 buybacks recorded during the equivalent period in 2016 and the USD588,570mn via 827 buybacks posted during the 2015 y-t-d period. Moreover, this represents the slowest year for such deals in the dataset we have, which dates back to 2010. Let us not forget then that 2017 has seen the joint largest share buyback on record; without it, this year's haul would have been significantly lower. We are, of course, referring to the USD50bn buyback launched by tech giant Apple earlier this year, which matched the USD50bn deal completed by American multinational conglomerate G eneral E lectric back in 2015 and the two earlier USD50bn buybacks completed by Apple itself back in 2015 and 2013. Other US firms to have bought back stock this year include Anglo-Australian miner Rio Tinto, with a seemingly more modest USD2.5bn deal, USD560mn of which took place in Sydney and the remainder in London. The deal took the total haul of share buybacks by Rio this year to USD4.0bn. Charter Communications (CHTR), retailer Home Depot, aviation specialist Boeing, Wall Street giant JPMorgan Chase, tech firm Texas Instruments, and oil & gas explorer Anadarko Petroleum are just some of the other names which have also snapped up their own stock from investors so far this year. Most recently, retail giant Wal-Mart has also announced an impending USD20.0bn buyback programme

An Overnight Boost

Losing Popularity
USDShare Buybacks By Deal Value, USDmn
Source: Zephyr (a Bureau van Dijk product), BMI

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