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.
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.
The US M&A market delivered another year of strong performance 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.
We surveyed 200 executives on their views about the future of M&A and found that most remain optimistic about 2019
TMT and energy were the top two sectors by value; fintech is poised to invigorate dealmaking in the financial services sector.
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
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 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
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 M&A value jumped 116 percent to US$74.9 billion in 2018, with deal volume staying flat at 46 deals
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 the second half of 2018, the Delaware courts once again produced decisions that will guide M&A transactions in the future
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
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
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The past year has been mixed for US M&A markets. Deal value is up by more than a quarter and domestic dealmaking is thriving. However, inbound deal activity, by contrast, has plummeted and dealmakers are wary about the impact that tariffs, a tougher CFIUS regime and a downshift in the cycle could have on deal markets in the year ahead.
Here are four trends that will shape dealmaking in 2019:
Domestic transactions are likely to thrive in 2019. Corporate balance sheets are still healthy, which could enable companies to pursue deals, despite geopolitical and economic uncertainty.
Our survey bears this out. More than three-quarters of respondents see the US as the most attractive country for M&A in the next 12 months. And many feel that a stable economy and moderate GDP growth will lead to an increase in domestic dealmaking. Meanwhile private equity is becoming even more competitive and has near-record dry powder to put to use. The battle for the best assets is likely to drive valuations even higher, but even high prices are not likely to deter more determined dealmakers.
The Trump administration’s protectionist inclinations, the looming possibility of continuing trade wars between the US and its biggest trading partners, the ongoing struggles to define Brexit, the rise of global debt and, most importantly, the risk of a recession—all represent a considerable overhang when considering M&A in 2019. Against this backdrop, a downturn in dealmaking is inevitable, but predicting its timing is difficult. Buyers and sellers will likely take these factors seriously and proceed with caution in coming months. Yet, the dealmakers that we surveyed have shown considerable optimism. The vast majority of respondents predict moderate growth in the US economy in 2019, and 94 percent say that their company’s appetite for M&A has increased thanks to the Trump administration’s tax reforms. If we’re lucky, the downturn won’t materialize until 2020.
Despite the anticipated rise in domestic deals, there are reasons to be wary. Even though economic headwinds are building, deal multiples remain stubbornly high and the margin for error on entry evaluation is narrow. As a result, buyers may be looking over assets in increasingly fine detail and stepping away when any wrinkles in a deal emerge. Don’t be surprised if the number of broken deals and failed auction processes increase, as buyers think twice about paying up when processes hit a snag.
The last year has been a difficult one for inbound investors, and things are likely to get worse for foreign buyers in 2019. Tariffs will make global companies with international supply chains think twice about pursuing US deals, and overseas investors face tougher scrutiny from regulators who are worried about the national security risks that could emerge from foreign ownership.
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