Our thinking

Navigating change: US M&A H1 2018

What's inside

Clouds are forming on the horizon, however appetites for big-ticket deals have not yet diminished

US M&A defies market uncertainty

An impressive first half of the year for US dealmaking reflects M&A's enduring value in an uncertain market

After a very strong 2017—when M&A in the US reached its third-highest overall deal value since the financial crisis—deal value grew again in the first half of 2018. Compared to H1 2017, value rose 30.5 percent to US$794.8 billion when compared to the same period in 2017, while deal volumes held steady.

Activity has been brisk despite increasing macro-economic headwinds. The Federal Reserve recently raised interest rates and signaled its intention to do so again twice more before the year is out. Threats of a bourgeoning global trade war are intensifying after the imposition of tariffs by the US and other large economies. And the US stock market has experienced significantly higher volatility this year than it did last.

One could reasonably expect that M&A would cool against this backdrop, but the fact that it has not suggests that deals are going ahead for essential strategic reasons rather than opportunistic ones.

Technology and its disruptive impact across all sectors is one of the main factors that has made M&A a necessity. The impact has been most apparent in sectors such as retail and healthcare, where digital platforms are ideally placed to disrupt established service and distribution channels. No sector has been untouched, however. Unless non-tech companies have the resources in-house to write their own software and algorithms—and most do not—M&A may be the best option to keep pace with dynamic change.

We expect the second half of the year to be busy, but no one can afford to ignore the threats posed by rising interest rates, increasing protectionism, an incipient trade war that could increase tariffs, a potentially inverting yield curve, unsustainable pricing demands and a volatile stock market. Companies will need to navigate these dynamics if M&A's bull run is to continue.

 

John Reiss
Global Head of M&A
White & Case

Gregory Pryor
Head of Americas M&A
White & Case

 

Navigating change: H1 in review

First-half activity remains on par with 2016, as strong fundamentals continue to drive M&A

New York City buildings

PE hits new post-crisis high

Despite intensifying competition within the market, US private equity activity is yet to show signs of a downturn

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Sector watch

Energy, mining & utilities leads the field

Bulky oil & gas deals pushed energy, mining & utilities close to the top spot in H1, while digital disruption ensured a steady flow of tech deals

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Technology M&A gets white hot in 2018

Dealmakers across all industries are looking to secure US tech assets in order to keep up with the technological changes disrupting their industries

urban area at night

Consumer firms adapt to survive

Despite a drop in headline figures, M&A within the US consumer sector remains an important method to secure long-term growth

root vegetables

Oil & gas M&A gains cautious ground

A steadying oil price signals a brighter future for oil & gas M&A, yet market caution remains

oil pipelines

Big-ticket deals drive pharma M&A

Activity in the sector is fueled by the need to refill product pipelines and navigate convergence between health and tech firms

medicines

Industrials & chemicals M&A gathers pace

Corporate repositioning and tax reform are two key trends driving M&A in the sector

welding

Is blockchain M&A poised to accelerate?

US dealmakers are learning to navigate the complex world of blockchain M&A, but they will have to proceed with care in heavily regulated sectors

building windows

In focus: Financial services regulation

An overview of the financial regulatory landscape and key trends to watch

US dollar

Decision time for M&A in Delaware

Noteworthy rulings out of the Delaware Supreme Court and the Court of Chancery in the past six months are already having consequences for M&A activity

pedestrian streets

Spotlight on public companies: Cybersecurity and governance

The number and severity of cybersecurity incidents at major companies has increased, causing regulators to take a tougher approach. We look at five practical steps companies can take to manage these risks

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Conclusion

Key trends to watch in the months ahead

Acquirers shrugged off macro-economic uncertainty in the first half of the year to secure deals of strategic necessity

New York City buildings

Meet our partners

Global M&A leaders

John Reiss

 

John Reiss
Partner, New York

 

Gregory Pryor

 

Gregory Pryor
Partner, New York

 

 Dr. Jörg Kraffel

Dr. Jörg Kraffel
Partner, Berlin

 

Christopher Kelly

 

Christopher Kelly
Partner, Hong Kong

 

Allan Taylor

 

Allan Taylor
Partner, London

 

 Barrye Wall

 

Barrye Wall
Partner, Singapore

 

John Cunningham

John Cunningham
Partner, London

 

Alexandre Ippolito

Alexandre Ippolito
Partner, Paris

 

In focus: Financial services regulation

An overview of the financial regulatory landscape and key trends to watch

Insight
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4 min read

Consumer Financial Protection Bureau reform

Acting Director of the CFPB Mick Mulvaney has detailed a new vision for the agency in which it will act with restraint and not target companies without substantial evidence of wrongdoing. Since assuming his Acting Directorship, Mulvaney has announced several political appointments to key CFPB positions, issued over ten requests for information seeking public input on nearly every aspect of the Bureau, undertaken a comprehensive review of all CFPB rules rolled back requirements under its payday, prepaid card and HMDA-related rules, and announced its intention to create a regulatory sandbox to help incubate fintech and regtech products and services.

The Trump administration has nominated budget official Kathy Kraninger to succeed Mulvaney as the CFPB's permanent director. If confirmed, Kraninger is expected to continue Mulvaney's reforms of the agency. The CFPB, meanwhile, continues to face threats from the judicial and legislative branches concerning its current leadership structure and funding mechanisms. Given the foregoing, M&A activity in the consumer finance industry, which had slowed following the creation of the CFPB, continues to accelerate.

It will be interesting to observe how buyer consolidation activity evolves as the Trump administration continues to implement regulatory reforms and reshapes the CFPB. The rollback of regulations, for example, concerning the payday lending industry has made such lenders more attractive acquisition targets, hastened IPO activity and bolstered debt capital markets offerings.

Favorable economic trends, meanwhile, should continue to support financing and M&A activity within the consumer finance sector as businesses reach scale and seek further consolidation opportunity.

 

It will be interesting to observe how buyer consolidation activity evolves as the Trump administration continues to implement regulatory reforms and reshapes the CFPB.

Financial regulatory reform could encourage bank M&A

In late May 2018, President Trump signed into law the Economic Growth, Regulatory Reform and Consumer Protection Act (the "Act"), which could spur more bank combinations. One of the Act's key provisions raises the threshold for systemically important financial institutions (who are subject to more burdensome regulation) from US$50 billion to US$250 billion. The US$50 billion threshold has been a major deterrent to bank M&A, and raising it could stimulate more deal activity. Other changes under the Act could also encourage consolidation among smaller banks.

Beyond the Act, the regulatory environment continues to ease, as new leadership at the banking agencies softens their approach to enforcement, which could especially benefit foreign banks, who (up to now) have been frequent enforcement targets and who, as such, have been less acquisitive in recent years.

Likewise, the process for obtaining regulatory approvals appears to be accelerating as, among other things, regulators resolve community group objections more swiftly than in the past.

Finally, regulators appear increasingly open to innovative approaches to charter-structuring strategies, including dormant charter alternatives. These include industrial loan companies and new charter alternatives, such as the OCC's proposed special-purpose national bank fintech charter. Regulators' openness to innovation could significantly benefit M&A.

Other demographics also favour consolidation, as banks increasingly look to develop digital platforms and make heavy investments in technology; again, often with the support of regulators increasingly focused on fintech and regtech solutions that are transforming the landscape of the financial services industry.

All of these factors suggest that we will see increased bank M&A activity. Indeed, concurrent with the Act's enactment, in May 2018, a number of bank deals were announced, including Fifth Third Bancorp's US$4.6 billion purchase of MB Financial. Sellers in those deals varied, from de novo to larger regional banks and from commercial to retail operations. With continued easing of the regulatory environment, there is reason to think such deal activity will continue.

 

 

This publication is provided for your convenience and does not constitute legal advice. This publication is protected by copyright.
© 2018 White & Case LLP

 

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