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Monday, December 11, 2017

2017 M&A: Race to the finish?


As we enter the final stretch of 2017, the year behind us saw a continuing rush of M&A activity, albeit at a slower pace than the frenzied 2016. At the same time, many market observers are optimistic about deal activity in 2018.

For most of 2017, the year was notable for its dearth of blockbuster deals.  Bloomberg’s Alex Sherman noted as recently as October that “we haven’t seen the really big deals”. The largest US deals announced through early October 2017 included: United Technologies – Rockwell Collins ($30 billion), Johnson & Johnson – Actelion ($30 billion), Beckton Dickinson – Bard ($24 billion,) and Sempra Energy – Energy Future ($19 billion), while there were ten deals over $30 billion in 2016.

Then November came, and the big deal announcements picked up. In the past few weeks, CVS announced its deal with Aetna ($77 billion), quickly followed by UnitedHealth’s deal for DaVita Medical Group  ($4.9 billion). Broadcom announced its $105 billion offer for Qualcomm in November.

2017 headlines:

  • CVS is buying Aetna in massive deal that could transform health care (CNN)
  • UnitedHealth Is Buying a Major Doctor Group on the Heels of the CVS-Aetna Deal (Fortune)
  • United Technologies’ Blockbuster Forges Do-It-All Aviation Giant (Bloomberg)

The first quarter of 2017 was a slow start, but global M&A activity picked up by the third quarter, with $837 billion in announced deals up from $820 billion for Q2 and well above the $748 billion of a year ago.  The third quarter included the proposed $30 billion acquisition of Rockwell Collins by United Technologies, and the $19 billion acquisition of Energy Future Holding by Sempra Energy.  However, in the industrial sector, November saw Emerson Electric pull its bid to acquire Rockwell Automation for $29 billion.

Baker McKenzie’s Michael DeFranco, in discussing that firm’s GLOBAL TRANSACTIONS FORECAST 2018 noted that “there have been a number of positive developments in the global economy that have led to the forecast for global M&A values in 2018 to be increased from our previous forecast of US$3 trillion to US$3.2 trillion. This would represent the 3rd highest yearly deal value since 2001 and the 2nd highest since the financial crisis in 2008.” The report notes that dealmaking in the US is “set to rebound in 2018 after a year of ‘wait and see’ following the election of President Trump in November 2016” and suggests that a range of factors may cool deal activity from 2019 onwards, particularly in developed markets, including higher interest rates, a cyclical easing in global trade and investment growth, and a correction in equity prices back towards fundamentals.

With the anticipation of US corporate tax cuts and inducements to repatriate overseas funds, many deal industry prognosticators are calling for a healthy 2018, even while we’re on track to see a decline in 2017 deal volume of about 10% from 2016, with aggregate transaction value down closer to 20% year-over-year. A number of companies have suggested they are being cautious about M&A while awaiting news from Washington.  While 2017 won’t be a year for the record books, it’s certainly another strong year for M&A in the US and expectations remain positive going into 2018.

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Alan Fullerton is a partner with Mirus Capital Advisors. He works with owners of middle market businesses and can be reached at fullerton@merger.com.

 

 

 

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