US M&A shows enduring strength in 2017 and heading into 2018
M&A’s strategic relevance and strong fundamentals in the US fueled dealmaking in 2017—and are likely to continue to drive activity in 2018
The United States logged an excellent year for M&A in 2017, even though the total value of deals was down 13.3 percent compared to 2016. Overall deal value still outstripped all post-crisis years from 2008 to 2013, and the number of deals was up 0.4 percent year-on-year. The economy is growing, companies have capital to invest, financing is widely available and executives are confident—these and other factors created the conditions for a strong year for US M&A.
US dealmakers’ confidence in overseas investment was demonstrated in record-breaking figures for outbound deals. US companies agreed to pay US$340.8 billion for 1,330 cross-border deals, marking a 20 percent increase in outbound value compared to 2016.
There were fewer large-cap deals from overseas bidders compared to 2016. Heightened regulatory scrutiny contributed to a 31 percent drop in year-on-year inbound value to US$306.9 billion as foreign buyers took a more cautious approach in light of the blocking of some high-profile transactions. Inbound deals from China were particularly affected—Chinese acquisitions of US assets plummeted 81 percent to US$10.7 billion year-on-year, and volume dropped by 15 percent.
Record levels of undeployed cash helped to drive valuations higher and lift private equity buyout activity to a post-crisis high in 2017, both by volume and value. According to research group Preqin, cash reserves at private equity firms exceeded US$1 trillion, up from US$838 billion in 2016.
The US Federal Reserve raised interest rates by 0.25 percent in December, the third time it raised rates in 2017. The increase, along with an estimated GDP growth of 2.5 percent in 2017 and 2018, reflects strong fundamentals underscoring US dealmaking. The full impact of tax reforms will only become apparent over time, but as long as domestic growth continues and the US does not suffer any unexpected economic or geopolitical shocks, US M&A is likely to remain robust in 2018.