This article provides the key takeaways from the Global & Regional Merger and Acquisition report (published by Mergermarket) for the first quarter of 2019. Specifically, the report examines current factors which have contributed to a more challenging M&A climate at the beginning of this year.
After a peak in H1 2018, M&A activity has greatly diminished in Q1 2019. Greater market volatility, trade tension between the US & China, and the looming threat of Brexit have all played a part.
The value of global M&A activity in the first quarter of 2019 was US$801.5bn and was made up of 3,558 transactions. This is down 15% from the first quarter of 2018.
In contrast, US M&A value has risen 29% (from Q1 2018) to US$414.2bn and the US share of global M&A also climbed to over 51% which is the highest it has been since the fourth quarter of 2016.
Global M&A Activity Downturn
Analysts speculate that once Brexit reaches a definite conclusion & following improvement in M&A regulatory climate in Europe it is probable that the situation will improve.
However, right now, it would be remiss not to explore the decline in cross-border deals.
Global cross-border deals have virtually vanished, and this is crucial as, over the past five years, these have propelled M&A activity. There have only been nine mega deals this year that have reached above US$10bn.
In 2018, there were fourteen by this point. Furthermore, all but two were due to US companies removing competitors from their home market.
The largest deal has been Bristol Myers Squibb’s US$89.5bn bid to gain Celgene. This shows evidence of a continued surge of deals that are reshaping the pharmaceutical sector. The value of the Pharma, Medical, and Biotech sector has now reached a tremendous US$153bn.
Economic Uncertainty in the EU M&A Market?
Investment decisions by European firms experienced a slowdown during the first quarter of 2019. This can perhaps be correlated with issues of economic uncertainty as well as a continued stance of protectionism. At the same time, private equity firms released a record level of dry powder onto the market.
Due to all these factors combined, European M&A suffered a major downturn, the likes of which hasn’t been seen since the third quarter of 2012. There were just 1387 deals with a total of US$122bn – falling even further from an already subdued second half of 2018.
There have been ten massive deals and none of them have targeted Europe. There have also been no takeovers above a US$10bn announced or even on the horizon. Indeed, the largest deal was at a value of US$7.2bn when ZF Friedrichshafen acquired WABCO.
Another reason why we might be seeing fewer megamergers in Europe could be due to new anti-competitions laws. This was a move to create a European champion capable of competing outside the continent, an approach endorsed by Emmanuel Macron. The laws bring into question the viability of such mergers going forward. We’re currently writing a blog about the biggest shake-up of EU merger rules in 30 years, keep an eye on our LinkedIn page for more.
Current economic uncertainty has also hit domestic European M&A hard. Deal making in Europe amounted to just US$64.2bn and around 1,169 deals. This means that domestic activity in Europe failed to reach the US$100bn point for a total of three consecutive quarters. Furthermore, M&A between European companies contributed to just 52 percent of the continent’s total value. This was significantly lower than at the same time in 2018 when it was over 77% of the total value.
Foreign investment has also been lowering this year. Inbound M&A declined to US$58.7bn. This is the lowest it has been since the fourth quarter of 2017.
In contrast, Private equity firms have experienced significant levels of success with several high-profile buyouts being announced and total buyouts reached US$35.9bn. This total was made up of 259 buyouts which totaled 29% of the M&A of Europe. This is the highest figure on record at this time of year.
There has also been a total of 11 take-private buyouts collectively amounting to US$19.9bn. This includes a US$5.5bn takeout by Warburg Pincus and CPPiB of Inmarsat. This is the highest quarterly volume recorded since 2014. Furthermore, there were a total of 78 public to private buyouts from 2016 to 2018. This trend certainly doesn’t appear to be diminishing.
The Verdict For The EU M&A Market
In terms of individual countries throughout Europe, Brexit continues to take its toll on the UK as M&A activity has stayed at a historic low throughout the first quarter of 2019. Only US$35.2bn was exchanged during this time and it was the lowest quarterly value since before the EU referendum back in 2016.
If trade tensions between America and China subside or Brexit reaches a stable climax, it’s possible there could be significant improvements. Furthermore, improvements in the political and regulatory climate could act as a further boost to mergers and acquisitions throughout Europe over the coming months. Eyes will be focused on the European elections and yes, the outcome of Brexit.
Despite the first-quarter slowdown, Mergermarket sounded optimistic going forward.
“With pockets of consolidation in some particularly hot sectors, vigorous private equity activity and a healthy domestic deal flow in the US should give hope to dealmakers for the rest of 2019”
Beranger Guille, global editorial analytics director at Mergermarket.
It will be interesting to see how the M&A cycle develops throughout 2019; keep an eye on Imprima’s LinkedIn page for more insight.