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Defying gravity: US M&A H1 2019

What's inside

A rise in US mega-transactions more than made up for a drop in volume in the first half of 2019

Foreword

After a drop in activity in the second half of 2018, US M&A has recovered strongly in the first two quarters of 2019, demonstrating the appeal of dealmaking—despite uncertainty.

In spite of several quarters of growing uncertainty about macroeconomic headwinds, US M&A deal value grew again in the first half of 2019. Overall value for the first six months of the year was up 9 percent compared to the same period in 2018. And US deal value took up a larger share of global M&A, making up 53 percent of total global deal value, up from 41 percent in H1 2018. US deal volume, on the other hand, was down 21 percent compared to 2018, a record year for deal volume.

This is good news, particularly since global activity declined on both value and volume measures this year. But the future seems more uncertain today than it has in some time, particularly since there are strong reasons for both caution and optimism.

There are some signals warning that we are due for an economic correction, despite a US economy that remains healthy. US Federal Reserve Chairman, Jerome Powell, recently hinted at rate cuts, highlighting that uncertainty over trade policy and weakening global growth continue to have negative implications. Trade troubles persist, particularly with China. An inverted yield curve suggests that the market expects a downturn on the horizon. And, after a lengthy period of frenzied dealmaking, valuations are high.

Yet the US economic backdrop remains favorable, at least for now. Capital markets are at record levels and there is plenty of financing available for companies who need it to fund dealmaking. Private equity firms continue to amass capital to deploy.

Though deal volume has dropped for three quarters in a row, viewed in the longer-term context, activity remains robust.

Whether the second half of the year can sustain the same level of activity as H1 remains to be seen. The year-on-year growth in M&A value suggests that dealmakers still have appetite, as well as the capacity, to execute deals if the strategic rationale makes sense.

A break in the clouds: M&A in the first half of 2019

The US M&A market delivered a surprisingly robust first half, with total value rising 9 percent year-on-year. Volume, on the other hand, dipped 21 percent

Private equity slows in 2019 as valuations continue to rise

Despite accumulating a vast, historic pile of capital for acquisitions, private equity has moderated its pace of buyouts in the first half of the year

Sector watch

Sector overview: Pharma and TMT lead the pack

The pharmaceutical, medical and biotech sector was number one by value, followed by technology, media and telecoms (TMT). TMT led by volume, followed by industrial and chemicals.

Pharma chases innovation through deals

The need to replenish intellectual property has pushed the pharma industry to the highest-performing sector by M&A value

Technology dealmaking stays buoyant

H1 2019 has seen deal value continue to climb in technology M&A, as digital disruption overtakes segments of the market such as fintech and Big Data

Retail M&A falls as sector migrates online

M&A activity in the retail sector fell sharply during the first half of 2019, as uncertainty and digital disruption continue to put pressure on the sector

Megadeals drive oil & gas M&A

Concerns about the price of oil have left the industry reluctant to strike deals, bringing down volume and value in H1

Real estate M&A drops, but hopes are higher for H2

After a standout 2018, real estate M&A has dropped significantly in the first half of 2019, but segments of the market such as logistics and hotels have remained attractive

In Focus

Three key M&A decisions from Delaware courts

The first half of 2019 saw several decisions from the Delaware courts that will affect M&A dealmaking

SEC proposal would ease burden of certain financial disclosures on public companies

Proposed revisions to current financial statement disclosure requirements for business acquisitions and dispositions would simplify compliance while ensuring investors get the information they need

Conclusion

Can the good times last? Four factors shaping M&A in the second half of 2019

Many of the factors that have underpinned recent M&A activity remain in place, but concerns are mounting

Pharma chases innovation through deals

The need to replenish intellectual property has pushed the pharma industry to the highest-performing sector by M&A value

Insight
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3 min read

In the pharmaceuticals, medical and biotech sector, deal value in the first half of the year was up 142 percent to US$172 billion—making it the best-performing sector in terms of value in H1. But volume was down 11 percent to 282 transactions. Much of this increase in value can be attributed to Bristol-Myers Squibb's purchase of Celgene, one of the largest-ever deals in the sector.

The blockbuster US$89.5 billion Celgene deal is indicative of the market. Big pharma is competing fiercely in areas such as immuno-oncology, where breakthrough drugs are now transforming patient outcomes. These treatments have the added attraction of being more difficult for generics firms to replicate when they move off-patent.

It is notable that the third-biggest deal of the year so far, though much smaller, took place in the same segment of the market. Pfizer’s US$10.7 billion purchase of Array BioPharma will broaden its cancer drugs offering and strengthen its biopharma business.

Elsewhere in the industry, consumer health remains an interesting segment, with a number of large pharmaceutical companies divesting their businesses in this area of the market. Such deals reflect a desire to focus on the core business, particularly in the face of scrutiny from activist investors urging companies to concentrate their efforts where the most value is being generated.

Looking forward, there is now scope for increased M&A activity among firms seeking technological innovation. One area of interest, for example, is the increasing use of technology to improve decision-making during the clinical trials process. Enhanced use of technology will continue to be an important theme throughout the sector.

Another possibility is further M&A activity at a more strategic level, including deals designed around the principle of vertical integration as businesses seek to stay ahead of the market. Transactions that combine both retailer and payer, for example, provide clear opportunities.

Potential headwinds include increased political volatility, uncertainty around healthcare reform and the prospect of regulatory change, together with any notable deterioration in the broader economy.

Top pharma & healthcare deals
H1 2019

1: Bristol-Myers Squibb bought Celgene for US$89.5 billion

2: Danaher Corporation bought GE Healthcare Life Sciences for US$21.4 billion

3: Pfizer Inc. bought Array BioPharma, Inc. for US$10.7 billion

 

 

 

 

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© 2019 White & Case LLP

 

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