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As we enter a new decade, the signs are that we can look forward to another year of steady US M&A activity. We anticipate the following five trends will emerge to move the market through the year:
1. Economic strength drives deals in H1
Despite challenges such as the US-China trade situation and Middle East tensions, the US economy is forecast to remain strong throughout the year—at a 2.1 percent growth rate, according to the Conference Board. Meanwhile, unemployment is at a 50-year low and consumer confidence is predicted to rise in 2020. In addition, financing for deals is low-cost and widely available, the rise of activist investors has focused boardrooms on portfolio optimization and PE firms have unprecedented levels of dry powder to deploy. The conditions are right for early-year dealmaking, especially ahead of the run-up to the presidential elections in November.
2. Further disruption
Advances in the application of artificial intelligence, machine learning and the rollout of 5G will result in yet more disruption of business models across diverse sectors. This is set to unleash further M&A activity, as incumbents seek to reposition themselves, upgrade their infrastructure, improve productivity and fend off competition from, in some spaces, the technology giants, which are themselves pursuing aggressive acquisition strategies.
3. A rebound in oil & gas M&A
While 2019 was a slow year for deals in the sector, 2020 should be more active (assuming Middle East tensions don’t derail current trends). After a year in which oil prices bumped around the middling range, seller valuation expectations should now be more in line with what buyers are prepared to pay, which should help unblock the pipeline. In addition, debt maturities among restructured companies in the sector are looming, which will bring more deals onto the market through the year.
4. Greater emphasis on national security
With the full force of FIRRMA set to become a reality from February 2020, increased resources at CFIUS and rising scrutiny from US and overseas authorities, more preparation ahead of cross-border deals will become the norm. Buyers and sellers will need to think ahead about the involvement of overseas parties in their transactions and the extent to which dealmaking could be viewed as posing national security issues.
5. An increase in distressed opportunities
These will be caused by a variety of factors, including over-leverage; structural change in certain sectors; obsolescence where companies have been unable to reposition in the face of technological disruption; or even the start of the turning of the cycle after several years of benign economic conditions. Whatever the cause, however, the US market is well served with investors and turnaround specialists with the skill and capital to enable them to capitalize on distressed opportunities.
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