May 03, 2018

Deal value highest of any Q1 on record, cross-border value dip warrants caution

Shelle Martin, Senior Director, DatasiteOne | May 03, 2018

In many ways, the first quarter of 2018 was highly auspicious for global M&A. The total M&A value of US$890.6bn was the most for any Q1 since Mergermarket began tracking deals in 2001. An outburst of megadeals in March – there were eight transactions valued at US$10bn or more in the month and 15 deals over US$5bn – helped drive this total. The top deal saw further consolidation in the US healthcare industry, with insurance giant Cigna paying US$67.8bn for pharmacy benefit manager Express Scripts Holding.

The private equity industry also continued its torrid pace of dealmaking in Q1. Financial buyers are increasingly super-sizing their acquisitions in order to expand their pool of targets and put dry powder to work. In the largest deal of the quarter, PE mainstay the Carlyle Group teamed up with Singaporean sovereign wealth fund GIC Private Limited to pay a stunning US$12.5bn for the specialty chemicals business of Netherlands-based Akzo Nobel. The acquirers won the deal over fellow blue-chip PE firms Apollo Global Management, Bain Capital and Advent International.

There was one slight cause for caution in the quarterly deal totals. After a years-long trend of cross-border M&A rising continuously in value as the world economy becomes more integrated, cross-border value actually fell by more than 20% in Q1 2018. Increasing barriers to trade, especially between China and the US, have undoubtedly contributed to this decline. At the same time, a 53% rise in domestic M&A more than made up for the drop in cross-border deals. Eight of the top ten deals in the quarter were between companies in the same country.

In the wake of historic tax cuts in the US, North America retained its status as the top destination for deals. Just under 50% of all M&A value in the quarter was from deals for North American targets. Europe held onto second place with 29% of value and Asia-Pacific (excluding Japan) had nearly 17%. International acquirers are paying ever greater attention to Asian targets, but the region still lags when it comes to inbound megadeals – it had none of the top 10 deals by value for the quarter.

The Energy, Mining & Utilities sector demonstrated its enduring importance to the economy in having the highest M&A value of any industry in Q1, a position it often holds on an annual basis as well. The utilities sub-sector contributed the largest portion of the total in Q1 2018, with two deals of US$14bn or more in value. These included the US$46.6bn takeover of German electricity provider Innogy by rival E.ON, in a further shakeup of the German utilities market amid a push by the government to decrease reliance on fossil fuels and move to renewables instead.

Entering the second quarter of the year, equity prices have been in flux worldwide but dealmaking appears to be continuing unabated. We’ll be tracking the movements of acquirers as they react to these shifts in the market.

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