Mega deals driving robust North American M&A activity

Provided by Mergermarket

After one of the highest value half-year records for North American M&A on Mergermarket record, the fundamentals are in place for a robust second half, dealmakers say.

In the first half of 2019 US M&A continued to grow value-wise to USD 957.3bn across 2,530 deals, up 14.6% from the same period last year and up 35% from 2H18, according to Mergermarket data. The period was second highest-valued half-year period on Mergermarket record (since 2001), behind only 2H15 (USD 973.5bn).

Mega deals — transactions valued at more than USD 10bn — have fueled this year’s growth, with 19 such deals worth a combined USD 569.2bn in the first half, compared to 19 deals worth USD 473.8bn for the whole of 2018.

Despite headwinds over trade tensions with China, uncertainty over Brexit and nagging fears over an economic slowdown, the trend is likely to continue in the second half, advisors say.

“There’s a lot of disruption out there and a desire from large corporates to generate growth and synergies,” said Brian Fahrney, co-head of M&A at Sidley Austin. An appetite for technology, he added, is one of the key drivers behind the growing number of mega deals.

“Companies are being defensive and offensive in their approach to acquiring new technologies,” said Fahrney. “There is a lot of interest from old economy companies in acquiring technology and getting access to data.”

Private equity firms, meanwhile, have been raising record amounts of capital and chasing bigger targets, Fahrney noted. In the US, year-to-date, there have been three USD 10bn-plus buyouts, the same number as for the whole of 2018, including the over USD 14bn buyout of communications infrastructure provider Zayo Group by EQT and Digital Colony Partners.

Overall, healthcare, technology and industrials and chemicals were among the most active sectors in the first half.

Industrials and chemicals deal value almost doubled year-on-year, with 439 transactions worth USD 116.2bn, according to Mergermarket data.

One area currently under the spotlight is aerospace and defense after Raytheon [NYSE:RTN] and United Technologies’ [NYSE:UTX] USD 88.9bn tie-up, announced in June. Mergermarket has previously reported that the deal will likely spur a wave of consolidation among mid-tier A&D companies.

Elizabeth Donley, a partner at Hogan Lovells, agreed that aerospace, defense and government services will remain particularly active. “The sky’s the limit in terms of the available technological innovation, and companies are looking to M&A to acquire technology and R&D capabilities,” she said.

Carine Stoick, also a partner at Hogan Lovells, said that a 4.7% year-on-year increase in President Trump’s proposed defense budget to USD 750bn is spurring companies in the sector to push for scale via M&A to stay competitive.

Across industries, Sidley Austin’s Fahrny pointed to shareholder activism as another factor continuing to drive activity among large corporates.

In general, according to Mergermarket’s sister publication Activistmonitor, new shareholder activists dipped slightly to 126 in the first half, compared to 146 for the same period last year, but the trend for activists to target larger companies is continuing, with 19 campaigns in the first half involving companies with market capitalizations of more than USD 10bn.

Activists are increasingly taking vocal public stances in large, transformative deals, with the UTC-Raytheon tie-up and Bristol Myers Squibb’s [NYSE:BMY] planned acquisition of Celgene [NASDAQ:CELG] among the mega deals targeted so far this year.

by Tom Cane and Joshua Armstrong

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