M&As wobble amid trade tensions and political instability, but values still high

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However, the transactions that did make it to the signing table reached $3.5tn worth of activity, ranking 2018 as the third-largest year (since 2001) by value. Average deal size saw its second-highest total value on record with $384.8m, just below the $400.3m peak reached in 2015, according to the Mergermarket global M&A report.

Ambivalence

“With so many market-moving factors fluctuating throughout the year, mergers and acquisitions have understandably had a somewhat ambivalent 2018. Intensifying trade tensions, political instability, and increased regulatory scrutiny took their toll on the number of deals struck over the year, though deal values fuelled by cheap financing, pressure on companies to consolidate and competition from sponsors remained relatively high. Comcast’s eventual $51.5bn Sky takeover was a case in point where the Pennsylvania telecoms giant ended up paying considerably more than its starting offer in an effort to beat rival bidder Twenty-First Century Fox," says Elizabeth Lim, research editor (Americas) at Mergermarket.

Yet, activity did suffer in some corners. Chinese buys of US firms fell 94.6% to $3bn from a record $55.3bn in 2016. Meanwhile, China’s bids in Europe increased 81.7% to $60.4bn from $33.2bn last year. Cross-border count fell by 6.6% to 6,405, while valuations inched higher to $1.35tn from $1.27tn the year prior. Domestic count slipped to 12,827 from 13,115, while value increased 15% to $2.18tn from $1.90tn. US consolidations accounted for much of this, with top deals in pharmacy benefit management, telecommunications, energy, software, retail, and real estate, many of which found consolidation necessary for survival as technology disrupts sector after sector – a trend that seems likely to continue causing more structural changes in 2019.

Private equity

In the private equity space, historically low interest rates in the post-crisis period aided much of the capital needed to fund bidding wars. Ahead of expected interest rate rises, global buyout activity reached $556.6bm, its highest total in a decade and 3.7% more than 2017’s $536.7bn. Buyouts also achieved their highest-ever deal count – 3,599 – breaking the previous record of 3,530 set in 2017.

Three sectors to watch in 2019 based on strong figures in 2018 include energy, mining & utilities (EMU) – which ranked first by hitting its second-highest value on record with $673bn; Construction, which reached a new decade high of $116.5bn, driven by PE plays and infrastructure bids – the total value was just under 2007’s record of $116.8bn; and Defense also set a new record with $28.8bn as competition for government contracts heated up.