Despite a fall in overall global dealmaking, M&A in the US has proved resilient, as megadeals and domestic activity boost the market
It has been a busy year for M&A involving US companies. While global deal value dropped compared to 2018, the US maintained its year-on-year total and took a greater share of the overall deal market.
Confidence in the US economy and the opportunities it offers companies for growth and investment led to a market driven by megadeals (valued at US$5 billion or more), with the life sciences and TMT sectors leading the way. Indeed, a full 58 percent of the US$1.5 trillion worth of deals involving US companies qualified as megadeals, up from 47 percent in 2018. And nine of the top ten deals for 2019 were domestic, suggesting that US corporate executives see plenty of opportunity in their home market.
Last year was also characterized by a growing breadth of M&A market participants. Private equity (PE) remained active, buoyed by strong fundraising and high liquidity in the debt markets. Family offices continued their expansion into direct deals. And sovereign wealth funds, many of which had pulled back from direct investing, returned to M&A markets, with the US as a target.
Rising stock markets and competition for deals led to further increases in company valuations in both public and, in particular, private markets. Many corporates opted for deals involving stock consideration to mitigate high pricing, while PE players sought smaller platforms through which to execute buy-and -build strategies as well as hunting opportunity in taking public companies private. These trends suggest that dealmakers are proceeding with confidence but also caution when it comes to pricing.
Talk of a downturn has been muted somewhat as we head into 2020—at least regarding the first half of the year. Economic growth will settle at 2.1 percent, according to the Conference Board. Unemployment is predicted to remain low, and financing for deals will continue to be widely available and low cost. However, with a presidential election in November, as well as ongoing headwinds such as trade wars and unrest in the Middle East, there is no room for complacency.
As the rest of the world backed away from the deal table, confident US corporates continued buying businesses—especially in the life sciences and TMT sectors, and particularly in the domestic market.
In line with the wider US M&A markets, PE deals held firm through 2019 with 1,329 buyouts, worth US$208 billion, representing a decline of 9 percent by volume, but just a 4 percent fall by value relative to 2018.
In terms of value, the technology and healthcare sectors—separately and, sometimes, in tandem—have ruled the M&A markets in 2019. Meanwhile, the consumer industry faced tough times—though there could be a rebound in 2020.
Technology continued to be among the most active subsectors for US M&A in 2019, with 1,138 deals announced worth a total of US$206 billion. This represents a marginal decrease of 3 percent in volume and 7 percent in value compared to 2018 activity.
Restructurings and uncertainty are hitting the US consumer sector. Retail M&A deal volume dropped 11 percent year-on-year to 459 deals, while deal value dropped 36 percent to US$76.87 billion.
The trend for megadeals in US real estate continued in 2019, with 38 transactions in the sector, worth a total US$56.6 billion—but overall deal volume was down 17 percent and deal value fell 25 percent year-on-year.
The healthcare sector (incorporating pharma, medical and biotech) has seen M&A valued at US$256.5 billion across 645 deals in 2019. This is a decrease of 9 percent by volume, but an increase of 121 percent by value.
M&A in the US oil & gas sector slowed in 2019, with 190 deals worth US$158 billion, down 38 percent in volume and 45 percent in value, mirroring steep declines in global M&A in the industry.
Dealmakers are placing more emphasis on sustainability in the context of their investment practices. This is occurring despite a lack of US federal regulation on companies’ sustainability reporting.
We focus on two H2 2019 rulings that could affect M&A transactions in the future.
After a solid 2019, the foundations are in place for a strong start to the M&A year in 2020. The following factors are likely to heavily influence the market in the months ahead.
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John Reiss |
Gregory Pryor |
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Chang-Do Gong |
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Technology continued to be among the most active subsectors for US M&A in 2019, with 1,138 deals announced worth a total of US$206 billion. This represents a marginal decrease of 3 percent in volume and 7 percent in value compared to 2018 activity.
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While tech M&A deal value and volume were both fractionally down from 2018's figures, these numbers need to be put into perspective, as 2018 was a particularly strong year. Last year's total M&A value was higher than all years on record with the exception of 2018 and 2015. The 2019 numbers attest to the continued appetite for M&A in a sector that is transforming industries as diverse as automotive, financial services and healthcare.
Software as a Service (SaaS) remains a highly active M&A target, with two of the top three technology deals—Tableau Software's US$15 billion acquisition by Salesforce.com, and the US$11.8 billion consortium deal led by Hellman & Friedman and Blackstone for Ultimate Software—demonstrating the popularity and size of this part of the market, where buyers are consolidating and/or attracted by its recurring revenues.
The largest deal, Global Payments' acquisition of Total System Services for US$25.7 billion, also demonstrates there is plenty of room left for M&A in the payments technology area. Indeed, the arrival of 5G in the US is expected to transform the payments landscape. The transition to cashless and cardless transactions has been far slower in the West than in markets in Asia (mobile payments grew in China at a 123 percent CAGR between 2013 and 2018, according to a recent McKinsey report). This is likely to spur significant M&A activity over the short- to medium-term as financial services and technology players seek to grasp the growing cashless opportunities.
US $206 billion
The value of 1,138 deals targeting the US tech sector in 2019
The convergence of technology and healthcare (healthtech) is also rapidly maturing and investors and strategic buyers are increasingly seeing the potential for digital healthcare to improve efficiency and outcomes for patients. J.P. Morgan Chase, for example, acquired electronic medical billing and information specialist InstaMed for US$500 million in May. Meanwhile, technology giants are also entering the healthcare space through M&A: Deals such as the acquisition of online pharmacy PillPack by Amazon for US$753 million demonstrate their intentions, in particular, as more traditional acquirer Walmart was outbid in the process.
Absent a major shock, convergence-driven M&A is expected to continue for the foreseeable future, with advances in technologies such as artificial intelligence set to continue to disrupt a variety of sectors. Apple's June 2019 acquisition of Drive.ai, a self-driving startup, for US$200 million is one example, while others include Hewlett Packard Enterprises's deal to buy analytics business MapR for an undisclosed sum and Nike's purchase of retail predictive analytics company Celect for a reported US$110 million.
The increased adoption of these technologies, combined with improved mobile capability as 5G rolls out, may create fertile ground for M&A. However, there may be some softening of valuations, prompted by the fact that we are entering an election year and as a result of the strengthening of powers held by CFIUS (see page 5) to investigate technology M&A.
1. Global Payments acquired Total System Services for US$25.7 billion
2. Salesforce.com acquired Tableau Software for US$15.0 billion
3. Hellman & Friedman acquired Ultimate Software Group for US$11.8 billion
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