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
Activism among investors is on the rise across the globe. Companies that empower directors to engage with shareholders can optimize investor relations, if they follow some simple but important guidelines
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Over the past half-decade, shareholder activism has become a staple of corporate life. Formerly passive institutional investors have developed strong governance profiles and are more assertive than ever. Meanwhile, environmental and social issues have become priority matters for many shareholders. As a result, board members are increasingly being asked to engage directly with shareholders. In the 2018 PWC Annual Corporate Directors Survey, almost half (49 percent) of public company directors stated that a member of their board (other than the CEO) engaged directly with investors in 2018 (up from 42 percent in 2017).
Director engagement allows shareholders to express their concerns while also gaining the board’s perspective on issues such as strategic planning. It also gives the company an opportunity to learn about shareholder priorities, and changes in investor sentiment. It also creates goodwill by demonstrating that the company appreciates and values shareholder input.
However, the board needs to plan engagements carefully, by asking and answering the following eight questions:
A quieter time, outside of proxy season, is usually a good time to request a meeting. In periods outside the proxy season, engagement can help establish rapport and relationships before an issue arises. Late summer through fall is relative downtime for most institutional investors.
It is generally prudent to visit with the largest shareholders, as well as other influential or proactive shareholders such as pension funds.
The company should collaborate with shareholders on the attendees and the list of topics to be covered. Shareholders generally want to hear about long-term strategic vision and significant drivers of growth, in addition to relevant environmental, governance and social issues.
Director attendance is not necessary at every shareholder meeting. If issues related to compensation, board refreshment/composition, internal controls over financial reporting, capital allocation or strategic alternatives are on the agenda, the relevant director who can speak to these issues should attend. Consideration should also be given to the directors’ communication skills, knowledge and experience addressing investors.
Directors should understand the investors’ holdings, their views on governance issues and whether and how they use proxy advisory firms.
Directors should be well versed in the company’s position on the agenda topics, and should have the necessary information to explain and support that position. Directors should also be reminded about Regulation FD’s prohibitions on the selective disclosure of material non-public information and about legal restrictions on insider trading.
Meetings should never be conducted alone. It is generally appropriate for someone from investor relations to attend any meeting with shareholders, and other participants may include the general counsel or corporate secretary, or the CFO and/or CEO, as appropriate.
Shareholders want to leave the meeting feeling confident that the board understands their concerns, so they must be permitted to express their opinions. Directors should listen with an open mind, and relay the shareholders’ perspectives back to the board.
Directors should bring shareholders’ concerns to the board for discussion and consideration. In addition, they should work with management to formulate responses to any follow-up requests from shareholders.
Management should use the company’s proxy statement to give a complete picture of the company’s engagement efforts. This may include detailing the number or proportion of shareholders with whom meetings were held; listing the topics discussed during the meetings; and noting the changes the company is considering as a result of these meetings (or the reasons for not implementing suggested changes). Companies should also consider shareholder priorities when drafting proxy disclosure generally. Utilizing the proxy statement to provide insight into areas of investor concern can serve as another way to communicate effectively with shareholders.
Shareholder engagement can prove invaluable to all parties. Shareholders can learn the company’s approach to long-term growth and strategic planning, and gain confidence that the company is open to hearing their suggestions. Directors can better understand shareholder concerns and the driving forces behind their voting decisions. Moreover, engagement can be particularly valuable for the company in establishing a baseline of support from investors should a crisis arise in the future.
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