A rise in large mergers and acquisitions (M&A) helped offset a plunge in cross-border deals in 2019, and many dealmakers say they expect subsiding geopolitical risk to embolden companies to pursue more tie-ups across regions in 2020.
The value of M&A globally totaled about $3.9 trillion in 2019, making it the fourth strongest year for dealmaking, according to preliminary figures published by financial data provider Refinitiv. This is only slightly lower than the $3.96 trillion in deals recorded in 2018.
Cross-border M&A totaled $1.2 trillion, down 25 per cent year-on-year to its lowest level since 2013, as rising geopolitical uncertainty and regulatory scrutiny of deals made many corporate chiefs and boards wary of expanding beyond their home markets.
“Companies were more comfortable this year doing deals within their own regions given the macroeconomic risks such the trade tariffs and Brexit, so cross-border M&A was down,” said JPMorgan Chase & Co global M&A co-head Chris Ventresca.
Large deals, on the other hand, were on the rise, as companies were spurred on by their strong stock performance and cheap financing to pursue transformative acquisitions. The number of M&A transactions worth more than $10 billion increased 8 per cent year-on-year to 43 this year, their highest level since 2015, according to Refinitiv. Some 21 deals, each worth more than $20 billion, accounted for almost a quarter of global volume in 2019.
"Mega-deals were the main feature of this year's deal-making, especially in the United States, where the bulk of these transactions took place," said Goldman Sachs Group global M&A co-head Gilberto Pozzi.
The biggest deals of the year included US drug maker Bristol-Myers Squibb's $74 billion acquisition of Celgene; US defense contactor Raytheon’s merger with the aerospace business of United Technologies into a $135 billion company; and US pharmaceutical company AbbVie $64 billion purchase of Botox maker Allergan.
The United States accounted for close to half of global M&A volume in 2019, with $1.8 trillion worth of deals announced, up 6 per cent from a year ago. Europe and Asia tied for a distant second, with a little over $740 billion worth of M&A transactions announced in each region.
“Europe has been hit by macroeconomic headwinds in key markets, including Britain, Germany and France, where Brexit uncertainty, slow growth and social unrest have been some of the main hurdles,” said Pier Luigi Colizzi, Barclays’ head of M&A for Europe and West Asia.
In Britain, Europe’s largest M&A market, dealmaking dropped 4 per cent year-on-year to $220.6 billion, with much of the year dominated by political debate over when and how Britain will leave the European Union.
“Market uncertainty in the UK has played in favor of private equity funds, which have been very active and have carried out a number of take-private deals, including Merlin Entertainments, Sophos and Cobham,” said Cyrus Kapadia, CEO of Lazard’s British operations.
In Asia, China's economic slowdown led to M&A volume in the country dropping 14 per cent year-on-year to $380.3 billion, while the political turmoil fueled by Hong Kong's pro-democracy turmoils unnerved dealmakers in the wider region.
Room for M&A to pick up
After world stocks added over $25 trillion in value in the past decade, and a bond rally put $13 trillion worth of bond yields below zero, some investors have been asking whether a recession could be around the corner that would put the brakes on the wave of dealmaking.
Yet companies have not been holding back on M&A because of concerns about an economic slowdown, deal advisers say.
"The next economic downturn is not expected to be as severe as the 2008 financial crisis, and when it happens many well-capitalized companies may seek to capitalize on a drop in corporate valuations to pursue their dream deals," said Perella Weinberg Partners Chief Executive Officer Peter Weinberg.
The US economy grew 2.9 per centin 2018, but forecasts for 2019 are for around 2.5 per cent growth, due to the fading impact of US. President Donald Trump administration’s tax-cut package and slowing global growth. At this level, dealmakers say the environment would be conducive for more transactions.