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Peak performance: US M&A in 2018

What's inside

2018 was a strong year for dealmaking in the US, particularly domestically, but when will the tide turn?

US M&A weathers geopolitical storms

The political and economic backdrop may be unstable, but 2018 was a strong year for US M&A, especially domestically. However, a strong stock market cannot last forever, nor can a booming M&A market

US M&A enjoyed yet another busy 12 months in 2018. Deal value climbed by 15 percent and the domestic M&A market thrived. Overall domestic deal value was up 23 percent compared to 2017, and the ten largest deals of the year were all domestic transactions.

Steady economic growth, low unemployment and interest rates, and the billions of dollars released through the Trump tax cuts all boosted domestic dealmaking. In a survey of 200 M&A executives conducted for this report, more than three quarters see the US as the most attractive M&A market in 2019, and 80 percent expect the US economy to continue expanding over the next year.

But while there is plenty of reason to be optimistic, the positive deal and economic figures can obscure growing concerns that the cycle may be close to its peak. Stock markets have been more volatile this year and businesses are worried about the impact of the Trump administration’s actions.

More than half of respondents to the survey expressed their opposition to new laws that give the Committee on Foreign Investment in the United States (CFIUS) more powers to block inbound deals, and a third say they are worried about what escalating trade tensions between the US and China mean for their prospects. In what is supposed to be a strong seller’s market, the fact that close to a third of those we surveyed have suffered lapsed deals is further cause for caution.

As we go into 2019, there will be much for dealmakers to look forward to. Technology continues to transform the way businesses operate and will remain a reason to transact. The economy is still in good shape too, which will sustain confidence.

Dealmakers will not feel the need to sit on their hands just yet but will need to approach prospective deals with a degree of caution over the next 12 months to mitigate against the inevitable recession and stock market pullback.

 

Confidence, cash and tax cuts: The US M&A landscape in 2018

The US M&A market delivered another year of strong performance in 2018.

Private equity remains strong in 2018

Private equity buyout activity saw an increase in 2018, with volume rising 6 percent to 1,361 deals and value up 7 percent to US$214 billion.

US M&A survey: Deal drivers and dilemmas

We surveyed 200 executives on their views about the future of M&A and found that most remain optimistic about 2019

Sector watch

Sectors overview: Tech and energy top the charts

TMT and energy were the top two sectors by value; fintech is poised to invigorate dealmaking in the financial services sector.

Technology M&A value soars in 2018

After a period of frenetic dealmaking in technology over the last few years, which saw businesses across all industries scramble to adjust to the rapid shifts driven by digitalization, 2018 has seen value climb in the tech M&A sector

Consumer deals slip as digital disrupts

Digital disruption and its impact on physical retailers once again weighed on the consumer sector in 2018. Consumer M&A volume was down 13 percent year-on-year to 465 deals in 2018. Value decreased 28 percent to US$119 billion

Financial services deals are down, but 2019 brings hope

Financial services sector M&A volume decreased by 6 percent to 461 deals in 2018, with value decreasing 48 percent to US$80.2 billion. But there are signs that the sector’s M&A market is moving in the right direction going into 2019

Stability in early 2018 fuels oil and gas M&A

A stable oil price (for the majority of 2018) saw deal value climb in the energy, mining and utilities sector in 2018, despite volume falling

Real estate rises higher on megadeal surge

Real estate M&A value jumped 116 percent to US$74.9 billion in 2018, with deal volume staying flat at 46 deals

Next big thing drives healthcare M&A

Although deal volume and value in the pharma, medical and biotech sector fell in 2018, down by 3 percent to 580 deals and 27 percent to US$111.8 billion respectively, pharma companies have invested aggressively in strategic deals throughout the year

In Focus

Deal-changing decisions from Delaware

In the second half of 2018, the Delaware courts once again produced decisions that will guide M&A transactions in the future

Why, how and when should directors engage with shareholders?

Activism among investors is on the rise across the globe. Companies that empower directors to engage with shareholders can optimize investor relations, if they follow some simple but important guidelines

Conclusion

Four trends moving the US M&A needle in 2019

In 2018, the US M&A market has seen marked robust domestic activity and a strong tech sector but declining inbound dealmaking. We examine the four key factors that could characterize 2019

Meet our Partners

Global M&A Leaders

John Reiss

John Reiss
Partner, New York

 

Gregory Pryor

Gregory Pryor
Partner, New York

 

Allan Taylor

Darragh Byrne
Partner, Frankfurt, Stockholm

 

Allan Taylor

Allan Taylor
Partner, London

 

John Cunningham

John Cunningham
Partner, London

 

Alexandre Ippolito

Alexandre Ippolito
Partner, Paris

 

Christopher Kelly

Christopher Kelly
Partner, Hong Kong

 

 Barrye Wall

Barrye Wall
Partner, Singapore

 

carts

Consumer deals slip as digital disrupts

Digital disruption and its impact on physical retailers once again weighed on the consumer sector in 2018. Consumer M&A volume was down 13 percent year-on-year to 465 deals in 2018. Value decreased 28 percent to US$119 billion

Insight
|
3 min read

Retail consumer behavior has undergone a seismic shift as a result of technology, and the survival of the traditional retail consumer business is in question.

28%

Percentage decrease in consumer M&A value compared to 2017

Well-known retail brands such as Sears and Carson’s, which both went into bankruptcy in 2018, and Toys ‘R Us, which was saved from going bust at the 11th hour after a period of heavy restructuring, were some of the iconic retail brands hit by the shift in spending from bricks-and-mortar to online.

 

New channels, new products

When traditional retailers have pursued deals, they have either sought to boost their online offerings, as seen in deals like Walmart’s US$16 billion acquisition of Indian online retailer Flipkart, or to increase foot traffic.

The consumer sector has been more stable than retail, and multinational consumer corporations have had the confidence to pursue megadeals that expand their presence in key markets and product verticals.

Keurig Green Mountain, the coffee group owned by European investment vehicle JAB Holdings and others, acquired Dr Pepper Snapple Group for US$26.8 billion to strengthen its position in the US beverage market, while the second-largest deal of the year saw tobacco company Altria buy a 35 percent stake in JUUL, the manufacturer of a trendy electronic cigarette, for US$12.8 billion.

Looking ahead to 2019, the outlook for M&A in the sector is mixed. On the downside, potential  tariffs could increase costs and hit consumer spending. Meanwhile, an increase in interest rates could put a squeeze on financing.

However, technology and changing consumer tastes are transforming the sector all the time, and businesses will need inorganic growth to stay ahead of the curve. Corporates still have an abundance of cash on the balance sheets and are willing to buy. In addition, the positive dynamics in the market for sellers mean that private equity will be selling portfolio companies into the market. While there may be some caution around macroeconomic trends in the early part of the year, the need to stay on top of changing trends will continue to drive the market forward.

  

Top consumer deals
FY 2018

1: Keurig Green Mountain acquires Dr Pepper Snapple Group for US$26.8 billion

2: Altria acquires a 35 percent stake in JUUL Labs for US$12.8 billion

3: ConAgra Brands acquires Pinnacle Foods for US$10.8 billion

    
    

 

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© 2019 White & Case LLP

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