As we wrap up 2016 and look towards 2017, it’s a good time to reflect on deal activity over the past 12 months. From a slow start to the year, our industry seemed to pick up steam after January, only to lag a bit through the summer and fall. October brought some large announcements, pushing up aggregate deal value for Q4, after the first nine months of the year lagged 2015 transaction value by 32%.
To remind you of what January was like, here are a couple of headlines that capture the prevailing mood as we kicked off 2016:
- Dow plunges 391 points as fear grips markets (CNN)
- Analyst: Here Comes the Biggest Stock Market Crash in a Generation (Fortune, quoting an analyst)
While the news in January was dire, Goldman saw a silver lining:
- Goldman Sachs sees M&A business weathering market slump (Reuters)
M&A activity did recover from the impact of the first few weeks of 2016, but never reached the levels of 2015. Some big announcements in October helped push the numbers up going into Q4. Here are some of the headlines from the last few months of 2016:
- Global M&A Drops in 3rd Quarter, Companies Wary of Overpaying (Thomson Reuters)
- Merger Monday Alive And Well In 2016; October 2nd Biggest M&A Month In 25 Years (Factset)
- Seventy-five percent of all respondents expect deal activity to increase [in 2017]. (Deloitte)
- M&A Seen Surging in 2017, but Deal Size to Drop (WSJ, E&Y)
Meanwhile, big deals continued to make headlines, with companies such as Microsoft, Abbott and Bayer announcing significant acquisitions.
- Microsoft to Acquire LinkedIn for $26.2 Billion (WSJ)
- Johnson Controls to merge with Tyco (CNBC)
- Abbott Agrees to Buy St. Jude in $25 Billion Deal (WSJ)
- Apollo to buy ADT for $6.9 billion, combine with Protection 1 (Security Systems News)
- Bayer is buying Monsanto in $66 billion deal (CNN)
While activity through Q3 was down year over year, the fourth quarter has seen a number of multi-billion dollar announcements:
- AT&T, Inc. agreeing to acquire Time Warner, Inc. for $83.1 billion;
- QUALCOMM, Inc. agreeing to acquire NXP Semiconductors NV for $38.1 billion;
- CenturyLink, Inc. entering an agreement to acquire Level 3 Communications, Inc. for $25.1 billion;
- General Electric Co.’s deal to acquire Baker Hughes, Inc. for an estimated $25.0 billion;
- Symantec acquiring LifeLock for $2.3 billion;
- Rockwell Collins acquiring B/E Aerospace for $8.3 billion;
- TD Ameritrade acquiring Scottrade Financial ($4 billion); and
- Parker-Hannifin’s $4.3 billion purchase of Clarcor.
Coming into the final stretch of 2016, a few sectors seem to be picking up steam. Deal activity in industrial services, minerals (energy and non-energy), and communications was up in Q3 over 2015, while consumer and retail were relatively flat. Underlying drivers expected to continue in 2017 include the relatively low cost of capital, combined with modest organic growth prospects in many sectors, general economic optimism (or at least lack of pessimism) with some changes coming in healthcare and other sectors which could drive more deal activity.
Alan Fullerton is a partner with Mirus Capital Advisors. He works with owners of middle market businesses and can be reached at firstname.lastname@example.org.