Despite a fall in overall global dealmaking, M&A in the US has proved resilient, as megadeals and domestic activity boost the market
It has been a busy year for M&A involving US companies. While global deal value dropped compared to 2018, the US maintained its year-on-year total and took a greater share of the overall deal market.
Confidence in the US economy and the opportunities it offers companies for growth and investment led to a market driven by megadeals (valued at US$5 billion or more), with the life sciences and TMT sectors leading the way. Indeed, a full 58 percent of the US$1.5 trillion worth of deals involving US companies qualified as megadeals, up from 47 percent in 2018. And nine of the top ten deals for 2019 were domestic, suggesting that US corporate executives see plenty of opportunity in their home market.
Last year was also characterized by a growing breadth of M&A market participants. Private equity (PE) remained active, buoyed by strong fundraising and high liquidity in the debt markets. Family offices continued their expansion into direct deals. And sovereign wealth funds, many of which had pulled back from direct investing, returned to M&A markets, with the US as a target.
Rising stock markets and competition for deals led to further increases in company valuations in both public and, in particular, private markets. Many corporates opted for deals involving stock consideration to mitigate high pricing, while PE players sought smaller platforms through which to execute buy-and -build strategies as well as hunting opportunity in taking public companies private. These trends suggest that dealmakers are proceeding with confidence but also caution when it comes to pricing.
Talk of a downturn has been muted somewhat as we head into 2020—at least regarding the first half of the year. Economic growth will settle at 2.1 percent, according to the Conference Board. Unemployment is predicted to remain low, and financing for deals will continue to be widely available and low cost. However, with a presidential election in November, as well as ongoing headwinds such as trade wars and unrest in the Middle East, there is no room for complacency.
As the rest of the world backed away from the deal table, confident US corporates continued buying businesses—especially in the life sciences and TMT sectors, and particularly in the domestic market.
In line with the wider US M&A markets, PE deals held firm through 2019 with 1,329 buyouts, worth US$208 billion, representing a decline of 9 percent by volume, but just a 4 percent fall by value relative to 2018.
In terms of value, the technology and healthcare sectors—separately and, sometimes, in tandem—have ruled the M&A markets in 2019. Meanwhile, the consumer industry faced tough times—though there could be a rebound in 2020.
Technology continued to be among the most active subsectors for US M&A in 2019, with 1,138 deals announced worth a total of US$206 billion. This represents a marginal decrease of 3 percent in volume and 7 percent in value compared to 2018 activity.
Restructurings and uncertainty are hitting the US consumer sector. Retail M&A deal volume dropped 11 percent year-on-year to 459 deals, while deal value dropped 36 percent to US$76.87 billion.
The trend for megadeals in US real estate continued in 2019, with 38 transactions in the sector, worth a total US$56.6 billion—but overall deal volume was down 17 percent and deal value fell 25 percent year-on-year.
The healthcare sector (incorporating pharma, medical and biotech) has seen M&A valued at US$256.5 billion across 645 deals in 2019. This is a decrease of 9 percent by volume, but an increase of 121 percent by value.
M&A in the US oil & gas sector slowed in 2019, with 190 deals worth US$158 billion, down 38 percent in volume and 45 percent in value, mirroring steep declines in global M&A in the industry.
Dealmakers are placing more emphasis on sustainability in the context of their investment practices. This is occurring despite a lack of US federal regulation on companies’ sustainability reporting.
We focus on two H2 2019 rulings that could affect M&A transactions in the future.
After a solid 2019, the foundations are in place for a strong start to the M&A year in 2020. The following factors are likely to heavily influence the market in the months ahead.
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John Reiss |
Gregory Pryor |
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Chang-Do Gong |
Darragh Byrne |
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John Cunningham |
Alexandre Ippolito |
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Allan Taylor |
Baldwin Cheng |
Dealmakers are placing more emphasis on sustainability in the context of their investment practices. This is occurring despite a lack of US federal regulation on companies' sustainability reporting.
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For decades, those who acquire, sell, finance or operate facilities have considered how environmental issues can impact their businesses. However, the evaluation of sustainability in the context of an M&A transaction differs from how environmental issues have historically been considered in deals.
The evaluation of sustainability in the context of an M&A transaction differs from how environmental issues have historically been considered in deals
A sustainability assessment not only looks at tangible and quantifiable risks, such as subsurface contamination or compliance with laws related to air and water pollution. Instead, it also goes further and looks at harder-to-quantify risks and opportunities, such as whether a business involved in an M&A deal is managing the environmental impacts of its operations and products to both achieve compliance with laws and deliver value, and how climate change will affect a business due to extreme weather events, water scarcity, or vulnerability of the supply chain.
Buyers and sellers should be aware of the range of Environmental, Social and Governance (ESG) reporting regimes that can guide the external presentation of sustainability risks and opportunities in the context of a deal. The Sustainability Accounting Standards Board (SASB) and Task Force on Climate-related Financial Disclosures (TCFD) are prominent regimes, particularly in light of BlackRock's recent letter to portfolio companies that focused on the importance of climate change and sustainability in BlackRock's investments. It asked companies in which it invests to provide sustainability disclosure in line with SASB guidelines, as well as climate-related disclosure in line with TCFD's recommendations.
Other voluntary reporting and sustainability evaluation frameworks include the Global Reporting Initiative Standards and Guide on Climate Change for Private Equity Investors. There are also third-party raters like the Dow Jones Sustainability Index and Bloomberg ESG Data that analyze company sustainability data, provide ESG ratings, and summarize businesses' relevant risks and opportunities.
Buyers and sellers, in environmentally sensitive industries in particular, can also work with outside advisors to prepare sustainability reports for the purpose of an M&A transaction much like environmental engineers have been utilized for decades to prepare phase I reports to identify hazardous substances at properties involved in M&A transactions.
Despite the increased focus in the private sector on sustainability, the Securities and Exchange Commission (SEC) has avoided the topic since issuing guidance on climate-related risk disclosure in 2010. Nevertheless, information disclosed in voluntary sustainability reports must be accurate and consistent, as the SEC and other regulators may compare information voluntarily provided with information disclosed in SEC filings or other public documents. Going forward, public and private companies should consider whether a company's sustainability practices can be presented externally, or whether existing disclosure can be enhanced, in a manner that is consistent with what investors are looking for, considering sustainability as a means of improving a company's profile in the event of an M&A deal.
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