The Corporate M&A guide provides expert legal commentary on key issues for businesses. The guide covers the important developments in the most significant jurisdictions.
Last Updated: June 10, 2019
The M&A market in 2019 calls to mind a variation on a Dickens quote: “It was the best of times, it was . . . . . . . . . .” where how you fill in the blank depends on the perspective from which you look at the market.
We are in the sixth year of a historic M&A boom. Global M&A markets continue their deal volumes at high, if not record, levels, but they are doing so against an unsettling background of multiple and multifaceted uncertainties. There are simultaneously great reasons for optimism that global M&A activity will remain strong and worrisome signs that the foundations on which not only the M&A markets, but also broad swathes of the global commercial and financial markets rely are being called into question. These are interesting times.
M&A Volume Trends in 2018
2018 was a banner year for M&A transactions, with deal volumes and number of deals in most markets at or near all-time highs. Globally, there were more than USD4 trillion in announced M&A transactions, spanning all continents and industries. The year was marked by a large number of transactions, 41, with a value of over USD10 billion. This was up from 32 USD10 billion plus deals in 2017. These mega-transactions generated over a quarter of the 2018 total global deal volume, with the year’s largest transaction, the acquisition of Shire PLC by Takeda Pharmaceutical Co Ltd. accounting for almost USD81 billion in value. The other largest transactions included Cigna’s acquisition of Express Scripts, T-Mobile’s acquisition of Sprint and Comcast’s acquisition of Sky Ltd.
Deal volumes were up compared to 2017 in all regions of the world, except Latin America, with North America seeing a 42% increase, Western Europe seeing a 33% volume increase and APAC seeing a 13% increase. These are eye-popping increases in deal volume and reflect the breadth of the companies participating in the M&A markets.
Financial sponsors announced USD1 trillion in M&A transactions, just slightly behind their peak years in 2007 and 2015, with a balance between public company take-privates, purchases of businesses being divested and other M&A transactions. Such divestitures were another notable trend in 2018, as companies worldwide seek to increase business focus in order to satisfy investors and remain off the radar screens of activists.
2018 was in some way a tale of two halves — with the first half of the year seeing 35 of the top 50 deals of 2018 and, overall, dramatically higher overall volumes than the third and fourth quarters.
Factors Supporting M&A Activity
As might be expected, given the high dollar volume of transactions, many factors lined up to support the strong pace of M&A activity. Importantly, many or all of these factors have continued into 2019 and support deal activity this year. These factors include:
Headwinds for M&A
While 2018 saw near-record volumes of transactions, it achieved that success in the face of some significant headwinds. Among the factors negatively impacting the market in 2018 and continuing their adverse effects into 2019 were:
Over the Horizon
Sitting in New York City in April 2019, the skies are blue, the spring weather promotes optimism, first quarter global M&A deal volumes exceeded USD1 trillion and stock indexes sit at or around record highs. It is hard not to feel that the M&A market will grow forever.But we can be sure that it will not. Our business has always been cyclical, and there is no reason to think that it will not continue to be the case. This cycle will end, but there is reason for optimism that the ending will be a soft landing.
The world's developed economies seem to be managing their own soft landings with more success than is often the case. In the US, where interest rates were expected to rise, it now seems as if rates will stay low to support the economy. China is working hard to address its multitude of economic distortions. Europe has remained steady, if not growing meaningfully, in the face of the possibility of imminent Brexit, maybe even hard Brexit. Inflation remains dormant, even in the face of low unemployment. M&A seems to be baked into the DNA of many corporations, and even in an economic slowdown there will be a continuing desire to optimise business portfolios, acquire strategic assets and generate above average growth. This bodes well for M&A, even in a downturn.
Looking farther down the road, there are trends that are concerning and that could adversely affect deal volumes. Governmental dysfunction is forcing corporations and institutional shareholders to redefine the role of the corporation in society and try and set policy priorities for a variety of environmental, social and governance (ESG)-related goals. Establishing minimum standards of environmental stewardship, for example, historically has been a government function, not an investor or company function. Investors and companies will pursue ESG objectives earnestly and in good faith, but in inconsistent ways that will create economic inefficiencies. The involvement of companies and their boards in these societal priorities makes it more likely that national governments will seek to assert greater control over company decision-making processes. In the US we have already seen Senator Elizabeth Warren propose the Accountable Capitalism Act, which proposes that public companies be required to obtain federal charters and requires significant employee board representation. This legislation is unlikely to become law in this Congress or in the near future but it is a seed that could well sprout a tree in the coming years. Republicans likely will seek greater influence over corporations to promote their own policy agendas. The temptation to meddle in corporate decision making may become too great for politicians to resist. If that happens, consequences for corporate governance and decision-making, including about deals, are likely to be negative.
There is increasing discussion regarding the size and power of the world’s largest companies. The sheer size and power of business enterprises may be seen as too great, and calls for break-ups of companies may become more widespread. It will start with the FAANGs, but could move to many other companies. While the resulting spin offs and divestitures may create a flurry of work for deal professionals, this trend will make it harder to navigate combinations of large companies through the competition law processes in the US and elsewhere, which will be a negative for M&A volumes.