The third quarter of 2017 saw global merger and acquisition deals amounting to just $674 billion, the lowest quarterly value since the first quarter of 2016, when deals worth $623.4 billion occurred, according to Mergermarket. Year-to-date, deal volume in the United States is up, but deal value is down about 15%.
In addition, megadeals (consideration in excess of $5 billion), the ones most noticed by markets, are down 28% year-to-date, and their aggregate value is down 38%.
Given that summer is a slow time for dealmaking, are these statistics worth taking note of?
The results of the latest EY Capital Confidence Barometer, released Monday, suggest that there may be something to the slowdown narrative. Over the next 12 months, according to EY, 42% of the 561 U.S. executives surveyed say they are planning to pursue a deal. In the eight-year history of the survey, U.S. deal intentions have averaged 52% and ranged as high as 79% and as low as 23%.
“After the dealmaking boom of the last two to three years, we find executives turning their attention to maximizing the value of recent transactions, while also weighing the uncertainty in Washington on tax reform and deregulation,” stated Bill Casey, EY Americas vice chair of transaction advisory services. “We do not necessarily see this as a long-term shift in dealmaking but rather a potential tactical pause.”
According to EY, there are supportive factors that should propel dealmaking in the coming months, including low interest rates, surplus cash reserves, a full deal pipeline, and record dry powder in the hands of private equity funds.
Also playing a role will be so-called “super campaigns” by activist hedge funds, focusing on very large conglomerates, like Procter & Gamble. These activists “are challenging boards and companies to be laser-focused on synergies while shedding assets from both recently acquired companies or their existing portfolio that don’t support the go-forward strategy,” said Mitch Berlin, EY Americas operational transaction services leader.”
Then there are industrial giants like General Electric that, while not pressured by investors, will be keen to jettison slow-growing businesses.
For these divestitures to come to market, however, will easily take three to nine months, say experts.
The bigger M&A driver, at least in the long term, will probably be fear of digital disruption. Every CFO in the country has his or eyes scanning the horizon for the technology upstarts that are seeking to upend their markets and customer relationships.
Given the high valuations of tech firms, both private and public, these deals will also take time to execute. And they require some innovative thinking on the part of strategy setters.
On the M&A front, then, perhaps the rest of 2017 will indeed be flat and ordinary, at least for mega-deals. And maybe the first part of 2018 as well. But count on the bulk of 2018 to be anything but.
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