US M&A recorded its second-highest annual value ever in 2018, logging more than US$1.5 trillion in deals. That is a 15 percent increase compared to 2017, despite a 2 percent decline in the number of deals year-on-year.
Domestic dealmaking was particularly robust, having risen 23 percent year-on-year to US$1.2 trillion. US companies drew confidence from steady economic growth, low unemployment, business-friendly tax cuts and strong stock market performance. Indeed, the ten largest US transactions in 2018 were all domestic deals.
Cross-border M&A involving US companies did not fare as well. Inbound deal value fell by 10 percent year-on-year to US$277.5 billion, and outbound deal value fell 8 percent to US$324 billion. M&A involving Chinese bidders was down 66 percent by value year-on-year, to US$3 billion, and volume was down 40 percent to 38 deals.
The drop in inbound M&A was exacerbated by tougher regulations and checks on foreign buyers investing in the United States. For example, the Foreign Investment Risk Review Modernization Act (FIRRMA) was signed into law in August 2018, which significantly increased the scope of CFIUS, an interagency committee that reviews foreign investment on national security grounds.
Dealmakers have cause for concern in 2019. Rising interest rates, a potential economic slowdown, growing protectionism around the world and the looming threat of a trade war between China and the United States could all contribute to lower M&A activity.
Nevertheless, the US economy remained strong at the start of the New Year. Secular trends, particularly related to technology, will drive companies to pursue M&A. And despite stock market fluctuations, companies still have record amounts of cash to put to work. According to Moody’s, US corporations have approximately US$1.9 trillion in cash reserves.
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