Corporate M&A 2019

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: April 16, 2019


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Sullivan & Cromwell LLP is a global leader in M&A and represents clients worldwide on their largest and most important domestic and cross-border transactions. Over the last ten years, the firm has advised on approximately USD4.20 trillion in announced transactions worldwide, including many of the largest and most important transactions in the US, Europe, Latin America and Asia.


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:

  • Corporate revenue and profitability growth ambitions that exceed the underlying revenue growth characteristics of many businesses, causing companies around the world to seek growth in horizontal combinations that can result in significant revenue enhancements and cost savings or expansion into new geographic markets. These ambitions were largely supported by the shareholders of corporate buyers, who often showed a willingness to give credit for synergy projections and strategic benefits.
  • Ready access to both equity capital and low-cost debt financing to support acquisitions, including as a result of an easing of regulatory restrictions on bank lending into more highly leveraged transactions and the emergence of non-traditional direct-financing sources such as pension funds, sovereign wealth funds and family offices. The importance of financing availability was clearly demonstrated by the sharp slowdown in M&A activity in the third and fourth quarters of 2018 when financing markets became much more challenging for borrowers and for several weeks were almost closed to below-investment grade borrowers.
  • The importance of technology and a willingness to use M&A as a technique to acquire essential technologies.
  • Funds available to activists are at all-time highs, as is traditional institutional investor receptivity to activist themes. Activism sometimes drives companies to sell themselves. Activism also can encourage companies to sell significant businesses unrelated or less obviously related to the principal business or businesses, both to improve returns on invested capital and to eliminate an easy activist target. Activism also is a factor that makes it less desirable for companies to retain significant cash balances, making M&A a potentially attractive use for that cash. Importantly, activism is growing in volume and acceptance outside the US, and in the coming years significant activism is likely to occur in Europe and Asia, further driving M&A activity in those markets.
  • Private equity investors were active in 2018, both as buyers of companies and businesses and as sellers of their own portfolio businesses. This activity was supported by strong financing markets for the majority of the year, as well as by the historic levels of limited partner capital available to private equity firms.
  • In the US, tax reform provided access to cash previously trapped overseas and enhanced corporate cash flows.
  • Globalisation continues to push successful companies to expand outside their traditional markets, supporting the large volume of cross-border M&A transactions in 2018, which represented approximately 30% of total M&A volumes. This level was reached even with the continuation of a slow-down in outbound China M&A transactions that began in 2017 and continuing political resistance to globalisation and free trade.

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:

  • Growing geopolitical tensions, affecting Europe in the continuing Brexit saga and affecting US-China trade relations. Both situations probably had negative real economic impacts in affected markets and also dramatically deprived business decision-makers of the sort of foundational certainty that is an essential ingredient of strategic M&A. This reduced volumes, but other than China outbound to the US investment, which has been substantially negatively impacted, overall deal volumes remained strong.
  • Increasing regulatory uncertainty and delay now arises in multiple jurisdictions. In 2018, the US blocked the acquisition of Qualcomm by Broadcom and the acquisition of MoneyGram by Ant Financial while China blocked the acquisition of NXP by Qualcomm. Even transactions that are ultimately approved are being substantially delayed by regulatory processes as evidenced by the 746 days it took to close the Bayer-Monsanto transaction, the 681 days it took to close the Praxair-Linde merger and the 601 days it took to close AT&T’s acquisition of Time Warner. 2018 saw the imposition of a mandatory US national security review for covered transactions and expansion in the scope of transactions covered. Other countries have adopted or are discussing similar national security reviews. The line between national security and economic nationalism can be an easy line to blur.
  • Changing attitudes towards trade and free markets, while related to geopolitical tensions, has its own effects on M&A, especially cross-border M&A. Uncertainty in the ability to move goods and services across borders on a tax-free or lightly taxed basis reduces the efficiency of global manufacturing platforms and attractiveness of many cross-border acquisitions. While thus far there have been limited effects of threats of trade wars, outside of China-US, the steady drumbeat of threatening statements is a source of concern for the future.
  • High equity valuations and trading multiples make it more difficult for buyers to justify premiums and optimism in further share-price increases makes sellers reluctant to accept anything others than strong premium prices. This is not a recipe for successful cash M&A, although companies whose stocks have appreciated at similar rates can still economically negotiate lower premium stock for stock mergers. While stock prices collapsed in December 2018, they did so and recovered at a speed that resulted in few major M&A buying opportunities.
  • Activists, while an overall positive for the M&A markets, also have a braking effect on deals where acquirers worry that a transaction with more difficult to understand benefits may initially cause the acquirer’s stock price to fall and quickly attract an activist seeking to block the deal or attack the acquirer. Transactions with challenging stories are harder to get done.

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.

Author



Sullivan & Cromwell LLP is a global leader in M&A and represents clients worldwide on their largest and most important domestic and cross-border transactions. Over the last ten years, the firm has advised on approximately USD4.20 trillion in announced transactions worldwide, including many of the largest and most important transactions in the US, Europe, Latin America and Asia.