At the Crossroads – Exploring M&A in 2019 and Beyond

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    Squire Patton Boggs has published its latest analysis of global M&A trends, At the Crossroads – Exploring M&A in 2019 and Beyond. The report, produced in association with Mergermarket, presents key M&A data for 2019 to the third quarter, analysed by region and sector, together with insights into the factors affecting corporate and private equity dealmaking and prospects for 2020.

    With M&A activity on a decade-long upswing, 2019 has seen more than 13,300 M&A deals, totalling US$2.4 trillion, in the first three quarters of the year – only a small drop (15% in volume, and 14% in value) compared to 2018, but still higher than the total value recorded in the first three quarters of 2017 and 2016. Despite some signs of cooling down, this year is on course to be one of the most active post-financial crisis for global M&A.

    “The story so far is one of striking contrast,” says Tony Reed, EMEA chair of the Global Corporate Practice. “Geopolitical tensions, together with regional and global economic slowdown have cast a lot of uncertainty in the markets. At the same time, dealmaking has been buoyed by historically high levels of corporate cash reserves and private equity dry powder, as well as cheap debt, making financing costs low for the foreseeable future. These opposing forces, with the added ingredient of prominent shareholder activism, will loom large as we see out 2019 and move into 2020.”

    Analysis in At the Crossroads reveals:

    • Greater concentration of large-cap deals – Despite the overall fall in M&A globally, activity at the top end of the market remains healthy, with 16% of the largest 50 M&As of the last decade taking place in 2019. Mega deals were prominent in sectors such as pharma, medical and biotech (PMB), defence, and oil and gas.
    • Private equity (PE) activity has moderated, with a fall in value in Q1-Q3 of 2019 of 19% year on year, and in volume of 15%. However, with accumulated capital of some US$1.2 trillion, a closing of the valuation expectations between buyers and sellers should encourage more PE deals.
    • In regional terms, Europe has seen the greatest fall in inbound activity (down 44% in value in Q1-Q3 2019 compared to the same period in 2018) – occasioned by political uncertainty, including Brexit, and increased national and EU scrutiny at foreign investment. From an outbound perspective, the Middle East and Africa have seen the biggest drops (62% in deal value), though Asia Pacific is not far behind at 59%. China, in particular, has been impacted – in Q2, there was just US$3.4 billion worth of cross-border M&A emanating from China, the lowest quarterly figure since Q3 2010.
    • In sector terms, technology, media and telecoms (TMT) dominated globally, with 17% of value and 20% of volume in Q1-Q3 2019. PMB was the second-largest sector by value (16% of global M&A), and largest in Europe. Energy, mining and utilities registered a significant fall in total deal value, by 38% on the corresponding period in 2018.

    At the Crossroads makes clear that in 2019, affordable debt and swollen balance sheets, together with factors such as the continuing search for innovation and IP, have been the drivers behind deal activity, though global trade tensions and issues, such as Brexit, have also taken their toll. The question now is whether activity has moderated to a new plateau that will carry over into 2020 or whether conditions deteriorate, leading to increased risk aversion and decreased appetite for M&A. “One thing is certain,” adds Tony Reed, “there is abundant liquidity in the system, and deal activity will follow the money, whether cross-border or domestic M&A, even if at moderated levels.”

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