Our thinking

Tried and trusted: US M&A in 2017

What's inside

US dealmaking remains robust, as M&A's
strategic value remains as relevant as ever

M&A's strategic importance endures

In spite of an uncertain political backdrop, 2017 was a solid year for M&A in the US. And our exclusive survey reveals the drivers that could continue the momentum through 2018.

Following two blockbuster years was never going to be easy, but US M&A more than held its own in 2017. The total value of US M&A dropped 14.3 percent to US$1.3 trillion year-on-year, but volume increased by 0.4 percent to 5,347 deals.

Putting this into clearer perspective, 2017 value was the third-highest since the economic crisis took hold in 2008. Solid economic fundamentals continue to ensure deals were done—interest rates remain low, equity values are at record highs and there is a high degree of confidence within the business community. The US economy is growing steadily and continues to create jobs.

Uncertainty around the policy direction of Trump's first year as President weighed on dealmakers' confidence in 2017, as have concerns about antitrust enforcement and increased scrutiny of inbound deals by the Committee on Foreign Investment in the United States (CFIUS). Yet passage of a pro-business tax reform bill eased dealmakers' minds. The enthusiasm is evident in our survey of US dealmakers.

The survey also shows that strong strategic reasons continue to drive M&A. Technology is an important driver, disrupting companies in every industry, changing the way business is done and blurring the lines between traditional sector boundaries. “Old economy” companies simply have to buy tech skills and platforms if they are to survive the era of digital transformation. Meanwhile, technology companies are increasingly showing a willingness to acquire businesses that help them break into new adjacent sectors that they see as important for future growth.

Activist investors remain busy, with significant influence on corporate strategies. And traditional activists increasingly behave more like private equity funds as they partner with strategic acquirers or make acquisitions on their own. Meanwhile, private equity firms have record levels of untapped investment capital available for transactions. No dealmaker can afford to ignore macro-economic uncertainty, but the fundamentals supporting an active deal environment remain in place and M&A's strategic importance remains undiminished.

 

John Reiss
Partner, New York

Gregory Pryor
Partner, New York

 

Peaks, valleys and plateaus: The US M&A landscape in 2017

Overall deal value declined in 2017, yet it was higher than all other post-crisis years from 2008 to 2013.

street clock

US M&A survey: Drivers, dilemmas and destinations

Our exclusive survey identifies impacts from tax reforms and the repatriation of offshore capital as key areas to watch in 2018. Digital innovation remains a major driver for transactions, while effective due diligence poses a challenge.

New York City

Private equity activity reaches a peak

Record levels of dry powder and intense competition for deals caused buyout volume to reach a record high in 2017, while exit activity is encouraged by high valuations.

US dollar bank notes

Sector watch

Overview: Consumer and financial services power into 2018

The consumer, energy, financial services and tech sectors had standout years in 2017.

Pedestrians crossing in the streets of New York

Technology M&A volume skyrockets

The sector saw the highest number of deals across all industries in 2017, as the hunt for innovative technologies continues to break down sector boundaries.

Pursuit of scale drives consumer M&A

The race to consolidate resulted in a flurry of megadeals in 2017, while the disruptive impact of technology on consumer behavior continues to generate activity.

shopping carts

Insurance deals power financial services M&A

Insurance assets are attracting dealmakers due to low capital requirements and steady cash flows. Established fintech providers are using M&A to expand geographically.

High-rise buildings

Energy dealmaking is fueled by oil and power

Oil & gas dealmaking continues to generate the bulk of sector activity; consolidation in the power sector was driven by unsettled market conditions.

industrial heat pumps

Industrials and chemicals M&A moves into the digital age

While market uncertainty surrounding tax reforms and NAFTA negotiations caused sector deal value to take a hit in 2017, technological convergence continues to generate a healthy level of deals.

petrochemical industry

Searching for the next big thing: Healthcare M&A

The hunt for blockbuster drugs is driving activity within the sector, while technology firms’ increasing presence in the market will be an area to watch in 2018.

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Conclusion

Four key trends moving the M&A needle in 2018

M&A's strategic relevance will ensure transactions continue to close in the face of geopolitical uncertainty. But trends in four areas—taxation, technology, PE, and antitrust—could define the coming year of dealmaking

Brooklyn Bridge, New York

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

 

Wall Street

Insurance deals power financial services M&A

Insurance assets are attracting dealmakers due to low capital requirements and steady cash flows. Established fintech providers are using M&A to expand geographically

Insight
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4 min read

Since the credit crisis, financial institutions have had to significantly increase their capital reserves to meet new regulatory requirements and rebuild their balance sheets. This reduced the amount of cash available for M&A. Yet the picture now appears to be changing, with the sector attracting some big-ticket deals in 2017. Total M&A value jumped 82 percent year-on-year, with US$147.5 billion spent over 456 deals.

82%

Increase in financial services deal value compared to 2016

 

Insuring growth

The insurance sector has been a particularly active area for deals, with dealmakers attracted to steady cash flows and relatively low capital expenditure requirements. Indeed, insurance targets accounted for the top-four financial services deals of 2017, including asset manager MetLife's US$6.1 billion spin-off of its retail and annuities business Brighthouse Financial.

Health insurance is emerging as a key area for M&A. In the highest-valued financial services deal of the year, pharmacy group CVS recently agreed to pay US$67.8 billion for health insurer Aetna. The transaction is viewed by many analysts as a response to plans by Amazon to move into the drug distribution market. The deal is also seen as a way for CVS to strengthen its purchasing power in negotiations with pharmaceuticals providers.

Centene Corporation, a multi-line healthcare group that serves as a key intermediary for state and private healthcare insurance programs, also announced its US$3.7 billion purchase of Fidelis Care. The transaction has strengthened Centene's government-sponsored healthcare business, ensuring it now has a market-leading position in California, Florida, New York and Texas, the four largest managed care states in the US by membership.

US $147.5 billion

Value of deals in US financial services M&A

 

Fintech expands its footprint

The fintech space has been a major force driving M&A in financial services, particularly as fintech companies—now established service providers in their own right—turn to M&A to expand geographically and consolidate their specialist areas. US payments firm Vantiv, for example, made a major international push by acquiring UK counterpart Worldpay in a US$12 billion deal. And Vista Equity Partners, the backers of Misys, supported the US$4.8 billion merger of Misys and D+H to form Finastra, which will be one of the largest fintech companies in the world. 

 

TOP FINANCIAL SERVICES DEALS 2017

1. CVS Health Corporation agreed to acquire Aetna Inc. for US$67.8 billion

2. MetLife, Inc. (shareholders) acquired Brighthouse Financial, Inc. for US$6.1 billion

3. Kohlberg Kravis Roberts & Co. L.P., and Caisse de Dépôt et Placement du Quebec bought USI Holdings Corporation for US$4.3 billion

    
    

 

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