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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

 

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.

Insight
|
4 min read

Amid a mixed M&A landscape, private equity (PE) was a trustworthy asset class for investors seeking strong returns. This is reflected in the level of buyout activity seen in 2017, with value reaching a post-crisis high, while volume recorded its highest annual total on record. There were 1,176 buyout deals worth US$190.8 billion announced over the year, a 12.3 percent increase in value and a 10.5 percent increase in volume compared to 2016.

Buyout firms seem to be focusing on high-quality assets, preferring to write larger checks for top performers rather than focusing on marginal deals. This resulted in some headline-grabbing buyouts during 2017. A consortium including Energy Capital Partners paid US$17 billion for energy group Calpine in the largest transaction of the year. And Abu Dhabi Investment Authority (ADIA) and GIC acquired Pharmaceutical Product Development, a contract research provider to the pharma industry, for US$9 billion.

12.3%

Increase in buyout value year-on-year

 

Competition heats up

"It is very, very competitive right now, almost to a point where I think people are getting a little uncomfortable," says White & Case partner Oliver Brahmst. "It seems that it is now much easier to raise money than actually invest it." A record level of dry powder, which according to Preqin reached an all-time high of US$954 billion as of September 2017, prompted intense competition for transactions and drove deal values up significantly.


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It is very, very competitive right now, almost to a point where I think people are getting a little uncomfortable. It seems that it is now much easier to raise money than actually invest it.

 

Healthcare leads the pack

The healthcare sector saw significant buyout activity in 2017. "There's definitely been a focus on healthcare in PE," says Carolyn Vardi, partner at White & Case. "Within the industry, financial investors are becoming more sophisticated in order to understand how to comply with applicable regulations." ADIA and GIC's US$9 billion agreement to acquire Pharmaceutical Product Development, along with UK-based Pamplona Capital Management's US$4.9 billion purchase of life sciences consulting firm PARAXEL International, highlight the value financial investors place on the right targets.


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8.5%

Increase in exit value compared to 2016

 

A seller's market

Exit activity similarly experienced a strong year, with 1,083 transactions valued at US$258.3 billion—an increase of 10 percent in volume and 8.5 percent in value year-on-year. The large sums that PE firms have to invest has ensured that the market remains favorable to sellers.

"The overall dynamic where PE funds have significant amounts of capital to deploy means sellers will continue to push for higher multiples and equity backstops to purchase-price payment, leading to the continued tension between equity backstops and the reverse-termination fees that PE fund purchasers favor," Vardi says. Against this backdrop of sky-high valuations, meeting sellers' increasing demands may present a challenge to investors in 2018.

 

 

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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