US M&A accelerates into 2017
Despite geopolitical uncertainty, the value of US M&A activity rose significantly in the second half of 2016.
The value of US M&A was up 52 percent in the second half of 2016, compared to the first half of the year. And although value (US$1.5 trillion) and deal volume (5,084) were both down compared to 2015, 2016 was the second-highest year by volume since 2007.
Autumn brought a material uptick in big-ticket transactions. Four of the ten largest deals in the United States were announced in October and November. In October alone, US M&A volume broke US$254 billion.
A number of factors contributed to weaker performance in the early part of the year. Stock prices of acquirers fell following deal announcements, suggesting investor caution following a record-setting 2015. A large number of canceled deals took place in the first part of 2016, giving investors another reason for restraint. And uncertainty about geopolitical developments may have given investors pause.
But steady economic growth gave US dealmakers the confidence to continue pursuing transactions, with the World Bank forecasting a bump in GDP growth from 2016's 1.9 percent to 2.2 percent for 2017.
The key strategic drivers for steady M&A—supporting low organic growth with deals, improving margins through synergy and cheap financing—remain firmly in place, despite political change. Indeed, Donald Trump's election as US President injected enormous confidence into the markets, and Brexit has so far had much less impact than expected.
Given geopolitical uncertainty, dynamics could certainly change in 2017. But if current trends continue, 2017 will be a good year, and maybe even a great year, for dealmakers.