Global M&A slows down in 2019

US activity dips in 2H19 but retains 47.2% of global M&A on the back of domestic consolidation
China and Hong Kong M&A global share shrinks to 8.8%, with deal value down 27.7%
Boom in take-private deals totals USD 158.3bn in 2019
Average deal size at USD 389m, the second highest on Mergermarket record

Global M&A activity in 2019 was down 6.9% on the exceptional 2018 vintage to USD 3.33tn (across 19,322 deals), according to Mergermarket Global & Regional M&A Report 2019..

While this is above 2016 and 2017 levels, dealmaking slowed down significantly in the latter part of the year, with 2H19 recording a 24.2% fall in value versus the first half. Beyond the headline numbers, here are the M&A trends that emerged in 2019 and are likely to further influence dealmaking in 2020:

The US takes the lion’s share. Despite a dip in activity in 2H19, the US was home to 47.2% of global M&A activity in 2019, the highest share since 2001. While European activity plunged 21.9% in value compared to 2018 and APAC was down 22.5%, the US market showed resistance and grew by 1.5% on 2018, supported by a relatively strong economy and a number of large domestic deals. Indeed, 15 of the top 20 deals of 2019 in value were the result of domestic consolidation among US-based corporations. Among those, the largest deal of the year, United Technologies’ [NYSE:UTX] USD 88.9bn merger with Raytheon [NYSE:RTN] in the defence and aerospace sector, is also the ninth largest deal on Mergermarket record.

Private Equity’s march continues unabated. The proportion of deals with a private equity firm on either side of the negotiation table reached 27.5% of all global M&A transactions in 2019, the third successive year above 25%. With a disclosed USD 556.4bn spent by private equity firms in 2019, buyout activity is not too far from the high levels of 2018 (USD 571bn). Sponsors continue to look for ways to deploy record amounts of dry powder, but after years of sustained buyout activity globally, the scarcity of quality family-owned assets has triggered a boom in take-private deals to USD 158.3bn in 2019, the highest value since 2007. Three such deals passed the USD 10bn mark: the USD 14.1bn acquisition of fibre networks operator Zayo Group [NYSE:ZAYO] by a EQT/Digital Colony Partners consortium, the USD 11.8bn acquisition of human capital management (HCM) firm Ultimate Software [NASDAQ:ULTI] by Hellman & Freidman, and the USD 10.2bn acquisition of midstream oil and gas pipeline operator Buckeye Partners [NYSE:BPL] by Australian IFM Investors.

Image: Mergermarket's John West spoke to CNBC about the latest global M&A trends of 2019

China’s influence is dwindling. Amid increased geopolitical tensions between the US and China and after more than six months of anti-Beijing protests in Hong Kong, the China and Hong Kong area’s global M&A market share shrunk from11.4% in 2018 to 8.8% in 2019, while deal value plunged 27.7% year-on-year to USD 294.5bn. Inbound and outbound deals have equally been hurt, reaching levels not seen since the beginning of the decade. Deals with US-based players were particularly difficult. China and Hong Kong-based bidders spent only USD 5.7bn over 31 deals in the US in 2019, the lowest amount since 2011. In the opposite direction, US investment into China and Hong Kong dropped to USD 7.7bn across 31 deals, the lowest value since 2013.

Deals are getting larger. On the back of the longest equity bull market in history, and amid persistently low interest rates, corporates and private equity firms alike have ample cash reserves and appealing debt financing options at their disposal. The feeling that these conditions may not last and the desire to secure future growth are pushing valuations up. At USD 389m, the average size of deals with a disclosed value is up from USD 353m in 2018, and the second highest value on Mergermarket record behind 2015, a record year for global M&A. The past year also recorded 38 megadeals (> USD 10bn), also the highest number of such deals since 2015. Finally, at 11.6x EV/EBITDA, the global median PE multiple across sectors is also near the highs of 2017 (11.7x).

Europeans go on a shopping trip. Hampered by sluggish Eurozone growth, which is predicted to linger into 2020, and the over-serialised Brexit saga, European M&A activity has suffered from a lack of big ticket deals in 2019, posting a 21.9% decrease to USD 770.5bn (vs USD 986.4bn in 2018). In contrast, European outbound M&A has reached a combined USD 272.1bn across 1,024 deals, 28.3% above the 2018 figure, driven by deals such as the USD 27bn tie-up between London Stock Exchange [LON:LSE] and financial data company Refinitiv, and LVMH’s [EPA:MC] USD 16.6bn offer for jewelery group Tiffany & Co [NYSE:TIF]. Steadier growth prospects across the Atlantic may partly explain why the US has received 66.4% of European outbound activity by value in 2019, up from 60.4% in 2018.