July 25, 2018

Record deal values come in a world full of contradiction

Jessop Fowler, Director DatasiteOne | July 25, 2018

Global M&A activity reached unprecedented new heights in the first half of 2018. A series of titanic megadeals drove deal value to an H1 record US$1.93trn, more than a 25% jump compared to the same period a year ago. These deals included tie-ups of global giants, such as Takeda Pharmaceutical’s US$79.7bn acquisition of Shire; transformative mergers, including Cigna’s US$67.8bn takeover of Express Scripts; and monumental moves toward consolidation, as in T-Mobile’s US$58.9bn deal for Sprint.

The high-dollar deals come in a world full of contradiction. Economies are booming worldwide, on the one hand, with global GDP growth of 3.9% expected in both 2018 and 2019, according to the International Monetary Fund. And yet the IMF said in July that this expansion is “more fragile” and “under threat” due to the rise of protectionism and trade wars, sparked largely by actions of the US government. At the same time, the US government is also responsible for a tax reform law that has spurred optimism and increased the capital available at many businesses.

Some sectors are also facing both auspicious and adverse forces. Take Energy, Mining & Utilities, which led the way in terms of M&A value in H1 2018 at US$338.8bn. The price of oil climbed higher in H1 2018, with Brent staying over US$70 a barrel since mid-April, giving fresh confidence to many producers. Yet the rise of renewables and the push for environmental safeguards have led to uncertainty for the fossil fuel industry.

Media and telecommunications companies are working to adapt to their industry’s new realities as well. The public is consuming content as never before, and telecoms providers are looking to position themselves to take advantage of — and keep pace with — these changes. The sector saw more megadeals in the first half of the year in response to the tumult, including an ongoing bidding war for European pay-TV provider Sky, which Comcast and Twenty-First Century Fox are each competing to acquire.

One trend that has stayed consistent this year is the relentless rise of Technology. The sector had the fifth-highest M&A value in H1 2018 at US$178.4bn, and equity valuations of tech companies have continued to march higher.

No one will be surprised to see the giants of the industry spend more of their cash piles on acquisitions in the coming months.

Private equity buyers also maintained their brisk pace of dealmaking in the first half. Buyout value fell year-over-year but only by 3%, and financial sponsors will need to put more of their dry powder to work in H2. In the current complex global environment, it pays to be diligent as an acquirer. But opportunities abound for those nimble enough to navigate the pitfalls. We’ll be watching to see how things play out the rest of the year.

For greater insight into these trends and more, download The Monthly M&A Insider, presented by Merrill Corporation and Mergermarket. The report explores the global M&A market with respect to the numbers, movements and trends, as well as revealing the top financial and legal advisors – globally and across six regions (North America, Central and South America, Europe, Middle East and Africa, Asia-Pacific and Japan).

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