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:

1: Domestic market remains buoyant

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.

2: Global risks present overhang

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.

3: More lapsed deals

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.

4: Inbound deal flow falls further

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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