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Projecting America's M&A Future

A slow and lumbering Q1-Q3 seemed to plague American M&A and dealmaking in 2016.   Q4 sought to change that, setting a precedent for 2017 to follow suit.

As one of the world leaders in M&A, American trends are very closely monitored, and can perhaps even foreshadow global trends. The start to 2016 did not look promising.  With the election dominating American airwaves, there was a zeitgeist of apprehension amongst the American society. That same apprehension, it would seem, existed amongst businessmen and women, investors, and corporates. The potential for change was particularly high in this election, with regulatory shifts, tax rates, and other important factors hanging in the balance.

Interestingly enough, when the apprehension was meant to climax, it almost seems as if it fell away entirely, at least in the world of dealmaking.  The Q4 swing was one that took 2016 from a down year to a year that closed in on the previous year’s success. Mergermarket reported that 6 of the top 10 deals from the entire year were announced in the fourth quarter. This rapid increase was fuelled by some of the largest deals globally, such as AT&T’s buyout of Time Warner Cable for $105bn, as well as Sunoco Logistics Partners’ acquisition of Energy Transfer Partners for $51bn. 

The rapid increase leaves us with questions regarding 2017’s prospect for growth.  With the World Bank predicting GDP growth in the U.S. to rise to 2.2%, up from 1.9%, there is certainly some evidence to suggest 2016 Q4’s trend may continue, although a slower rate is to be expected.   The cloud of uncertainty has not yet lifted; President Trump has yet to turn his full attention towards Wall Street.  It is assumed he will have a favourable approach, but nothing is certain, now more than ever.  Additionally, U.S. interests abroad, and foreign interests in the U.S. face their own challenges.  Chinese investors are expecting an increase in barriers enacted by their own  government, although most doubt that it will hinder their increasing global presence too much.  In Europe, the political atmosphere suffers from similar problems that the U.S. faced.  With two very different directions available, investors and businesses must be prepared for both.

While foreign waters are just as murky as they are in the U.S., one of the trends from 2016 would serve to aid American investors.  2016 showed a trend of less focus on American M&A abroad, and increased domestic dealmaking.  Additionally, foreign investments coming into the U.S. have increased, boosted by the Bayer-Monsanto deal and the Enbridge/Spectra acquisition in the energy industry. This is despite the Committee on Foreign Investment in the United States (CFIUS) blocking numerous sales of American companies to foreign investors.  This inward focus makes the uncertainty outside the U.S. less frightening, as they turn their attention towards working out the domestic climate.

There were some sectors which rose above the rest in 2016, with many of the major deals referenced previously.   TMT has arguably drawn the most attention, as it features the largest deal in the country.   However, industries such as industrials and chemicals, as well as energy, mining, and utilities.   These industries’ growth is what really carried American M&A throughout 2016, and it seems as if this growth may continue in 2017.  President Trump’s emphasis on infrastructure improvements provide increased support for this notion. 

Overall, the facts and figures from 2016 are continuously pointing towards a successful 2017.  With the first quarter nearing its end, it will be particularly interesting to see how the trends from 2016 affected the early months of 2017, and whether those trends continued, stalled, or reversed.

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