‘Unstoppable’ global M&A faces slower 2020 over markets, politics
NABILA AHMED and JAN-HENRIK FÖRSTER
The M&A train powered through instability this year, keeping a pace dealmakers worry won’t be maintained in 2020.
Global mergers and acquisitions weathered geopolitical tensions and roiling markets to post US$2.99 trillion in volume this year, a 1.5 per cent dip from 2018 though still the fifth-best year ever.
The number of deals this year through Friday dropped 4.2 per cent to 29,015, according to data compiled by Bloomberg. The biggest was United Technologies Corp.’s agreement in June to buy Raytheon Co., creating an aerospace and defence player worth more than US$100 billion.
“The current M&A market has proven to be unstoppable,” said Dusty Philip, Goldman Sachs Group Inc.’s co-head of global mergers and acquisitions. “Despite spikes in market volatility and macro concerns regarding trade and political uncertainty, we’ve seen a flurry of large scale M&A transactions in recent weeks.”
The bank’s “backlog is clearly up from the beginning of the year,” Philip said.
Goldman Sachs remained the top-ranked deal-maker in 2019, advising on 281 transactions worth $1 trillion, according to data compiled by Bloomberg. Jpmorgan Chase & Co., neck and neck with Morgan Stanley for the No. 2 slot, followed with 258 deals worth US$874 billion. Morgan Stanley advised on 234 deals worth US$821 billion.
While last year they were buoyed by a flush of private equity deals and transactions in the middle-market, this year was propped up by a rush of mega mergers. The top three investment banks were also helped as turmoil in Europe stung the region’s dealmakers.
Board rooms have plenty to worry about next year: the tumultuous U.S. presidential campaign, the U.K.’S Brexit deadlines, tariff-fuelled trade tensions and regulatory regimes targeting the world’s largest companies.
There will likely be fewer large deals in 2020, partly because of regulatory issues, said Robert Kindler, Morgan Stanley’s global head of mergers and acquisitions. Kindler expects the number of transactions to be comparable to this year, even as volumes shrink.
“I don’t expect that in anticipation of the election there will be a rush to do deals out of concern with the possibility of a change in administration,” he said. “I don’t think there’s that much of a difference between the current administration and what some of the Democratic candidates are saying.”
Private equity firms, flush with an estimated US$1.4 trillion in dry powder, are benefiting from cheap financing and finding partners to buy bigger targets. The largest this year was the US$14.3 billion buyout of fibre network company Zayo Group Holdings Inc. announced in May, in which Stockholm-based private equity firm EQT AB joined Digital Colony Partners.
Several private equity firms have been circling Germany ’s Thyssenkrupp AG, which could fetch more than 15 billion euros (US$16.6 billion), people familiar with the matter have said. Buyout firms have also been eyeing even larger targets such as Walgreens Boots Alliance Inc., the US$52 billion drugstore operator.
And while buyout firms are expected to remain very active next year, some of their ambitions could be hampered by tightening credit markets.
“People are going to be hard pressed to add a lot of leverage,” said Chris Ventresca, Jpmorgan’s global co-head of M&A.
Alison Harding-jones, head of M&A for Europe, the Middle East and Africa at Citigroup Inc., expects a busy first half of the year.
“There’s support for strategic deals that are fairly priced — demand for high quality companies is strong across strategics and private equity,” she said.
Health-care M&A volumes hit an all-time high in 2019, reaching US$461 billion. Mega deals included Bristol-myers Squibb Co. buying Celgene Corp. and Abbvie Inc. acquiring Allergan Plc.
Christina Dix, Bank of America Corp.’s head of health-care banking for Europe, the Middle East and Africa, said pharmaceutical companies will focus on optimizing their portfolios amid drug pricing pressure and U.S. health-care reform.
Jonathan Davis, an M&A partner at Kirkland & Ellis who advised Abbvie on the Allergan deal, said the deals pipeline is strong but he is watching whether companies show increased caution next year.
“There are a lot of positive conversations going on, but that is balanced by a few pronounced headwinds, including an upcoming election cycle and associated political and regulatory uncertainty, high valuations and recent choppiness in the credit markets,” Davis said.
To combat future market swings, companies are using stock to fund deals at the highest level in almost 20 years. Acquisitions by U.S. companies in which part of the payment is stock have surged 41 per cent to US$753 billion, higher than any previous full year since 2000.
Paying in stock, which ties a deal’s risk to the market, will remain a popular option to hard cash, said Anu Aiyengar, Jpmorgan’s head of M&A for North America.
“When you have a large amount of uncertainty in the world,” she said, “one way to address that is to do stock-for-stock deals.