Our thinking

Ahead of the pack: US M&A 2019

What's inside

While global M&A fell in 2019, the US forged ahead, maintaining its year-on-year value and taking a greater share of the global deal market

Foreword

Despite a fall in overall global dealmaking, M&A in the US has proved resilient, as megadeals and domestic activity boost the market

It has been a busy year for M&A involving US companies. While global deal value dropped compared to 2018, the US maintained its year-on-year total and took a greater share of the overall deal market. 

Confidence in the US economy and the opportunities it offers companies for growth and investment led to a market driven by megadeals (valued at US$5 billion or more), with the life sciences and TMT sectors leading the way. Indeed, a full 58 percent of the US$1.5 trillion worth of deals involving US companies qualified as megadeals, up from 47 percent in 2018. And nine of the top ten deals for 2019 were domestic, suggesting that US corporate executives see plenty of opportunity in their home market.

Last year was also characterized by a growing breadth of M&A market participants. Private equity (PE) remained active, buoyed by strong fundraising and high liquidity in the debt markets. Family offices continued their expansion into direct deals. And sovereign wealth funds, many of which had pulled back from direct investing, returned to M&A markets, with the US as a target.

Rising stock markets and competition for deals led to further increases in company valuations in both public and, in particular, private markets. Many corporates opted for deals involving stock consideration to mitigate high pricing, while PE players sought smaller platforms through which to execute buy-and -build strategies as well as hunting opportunity in taking public companies private. These trends suggest that dealmakers are proceeding with confidence but also caution when it comes to pricing. 

Talk of a downturn has been muted somewhat as we head into 2020—at least regarding the first half of the year. Economic growth will settle at 2.1 percent, according to the Conference Board. Unemployment is predicted to remain low, and financing for deals will continue to be widely available and low cost. However, with a presidential election in November, as well as ongoing headwinds such as trade wars and unrest in the Middle East, there is no room for complacency.

US dealmakers steer a steady path through global headwinds

As the rest of the world backed away from the deal table, confident US corporates continued buying businesses—especially in the life sciences and TMT sectors, and particularly in the domestic market.

Currency

Private equity stands its ground in 2019

In line with the wider US M&A markets, PE deals held firm through 2019 with 1,329 buyouts, worth US$208 billion, representing a decline of 9 percent by volume, but just a 4 percent fall by value relative to 2018.

New York City

Sector watch

Sector overview: Tech and healthcare take the top spots

In terms of value, the technology and healthcare sectors—separately and, sometimes, in tandem—have ruled the M&A markets in 2019. Meanwhile, the consumer industry faced tough times—though there could be a rebound in 2020.

Microscope

SaaS, cashless and convergence drive tech to the top

Technology continued to be among the most active subsectors for US M&A in 2019, with 1,138 deals announced worth a total of US$206 billion. This represents a marginal decrease of 3 percent in volume and 7 percent in value compared to 2018 activity.

Circuit board

Consumer deals fall but disruption may be a driver

Restructurings and uncertainty are hitting the US consumer sector. Retail M&A deal volume dropped 11 percent year-on-year to 459 deals, while deal value dropped 36 percent to US$76.87 billion.

Shopping Trollies

Real estate deals build on very solid foundations

The trend for megadeals in US real estate continued in 2019, with 38 transactions in the sector, worth a total US$56.6 billion—but overall deal volume was down 17 percent and deal value fell 25 percent year-on-year.

Fire escapes

Biotech boosts US healthcare M&A in 2019

The healthcare sector (incorporating pharma, medical and biotech) has seen M&A valued at US$256.5 billion across 645 deals in 2019. This is a decrease of 9 percent by volume, but an increase of 121 percent by value.

Pills

Pricing and pull backs affect oil & gas M&A in 2019

M&A in the US oil & gas sector slowed in 2019, with 190 deals worth US$158 billion, down 38 percent in volume and 45 percent in value, mirroring steep declines in global M&A in the industry.

Oil Fields

In Focus

Sustainability is an increasing focus for global M&A

Dealmakers are placing more emphasis on sustainability in the context of their investment practices. This is occurring despite a lack of US federal regulation on companies’ sustainability reporting.

Offshore Wind Turbine

Key dealmaking decisions from Delaware and New York

We focus on two H2 2019 rulings that could affect M&A transactions in the future.

New York Court House

Conclusion

Five trends that could move the M&A needle in 2020

After a solid 2019, the foundations are in place for a strong start to the M&A year in 2020. The following factors are likely to heavily influence the market in the months ahead.

Wall Street

Meet our Partners

Global M&A Leaders

John Reiss

John Reiss
Partner, New York

Gregory Pryor

Gregory Pryor
Partner, New York

Chang-Do Gong

Chang-Do Gong
Partner, New York

Darragh Byrne

Darragh Byrne
Partner, Frankfurt, Stockholm

John Cunningham

John Cunningham
Partner, London

Alexandre Ippolito

Alexandre Ippolito
Partner, Paris

Allan Taylor

Allan Taylor
Partner, London

Baldwin Cheng

Baldwin Cheng
Partner, Hong Kong SAR

Pills

Biotech boosts US healthcare M&A in 2019

The healthcare sector (incorporating pharma, medical and biotech) has seen M&A valued at US$256.5 billion across 645 deals in 2019. This is a decrease of 9 percent by volume, but an increase of 121 percent by value.

Insight
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3 min read

While 2019 has seen activity across the board in pharma and healthcare, it's clear that biotechnology assets continue to be highly attractive to acquirers. A significant proportion of the rise in deal value is attributable to the US$89.5 billion acquisition of biotech Celgene by BMS, one of the largest deals in the sector's history. The third-largest deal also involved a biotechnology business—Danaher Corporation's US$21.4 billion purchase of GE Healthcare Life Sciences.

Biotech and bulking up 

The rush for biotechnology acquisitions looks set to continue, as pharmaceuticals companies seek out ways of gaining an edge over generics manufacturers—biotech drugs are harder to replicate than more traditional pharma products—as well as finding products to fill their pipelines.

Building scale also continues to be an important driver for M&A in the sector. For companies opting to continue research and development work to create patented drugs, scale is vital given the substantial costs involved. For those focused more on generics, deals are being struck to create synergies, cut costs and build a global presence. Mylan's US$24.6 billion acquisition of Pfizer is one example, where the combined business will focus on generic and off-patent drugs.

Out with the old, in with the new? Or both

121%

Percentage increase in deal value compared to 2018

There are also moves to reshape companies in the sector. Vertical integration deals are one aspect of this reshaping. In these transactions, companies are acquiring what currently appear to be non-core businesses that bring new capability. CVS's acquisition of health insurance provider Aetna in 2018 is a prime example of this type of transaction. On the other hand, the divestment of non-core units continues, with consumer health assets a particular target, although other assets are also changing hands, as pharma companies rebalance their portfolios. Examples of this are Johnson & Johnson's divestment of Advanced Sterilization Products for US$2.8 billion to Fortive Corporation in 2019 and its acquisition of Ci:z Holdings in Japan, a dermocosmetic, cosmetic and skincare product business.

Finally, the sector is also bracing itself for the upcoming presidential elections in the US. Depending on the outcome, there could be a material change in healthcare reimbursement systems and Boards of Directors will be considering how to respond to potential changes to the current reimbursement system.

Top healthcare deals 2019

1. Bristol-Myers Squibb acquired Celgene for US$89.5 billion

2. Mylan acquired Pfizer for US$24.6 billion

3. Danaher Corporation acquired GE Healthcare Life Sciences for US$21.4 billion

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© 2020 White & Case LLP

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