Q2 2019 Intralinks Deal Flow Predictor: Peak M&A or a Pause for Breath?
Worldwide mergers and acquisitions activity stutters in 2018, faces growing headwinds in 2019
11 February 2019
Forget crystal balls and fortune tellers: Dealmakers wanting to know the future of global M&A six months ahead of everybody else should turn to the just-published Q2 2019 issue of the Intralinks Deal Flow Predictor for must-read predictions for M&A activity in H1 2019.
The big picture
On the heels of a decline in M&A announcements in H2 2018 and a slowdown in early-stage M&A activity in Q4 2018, our forecast for H1 2019 is for a 2 percent year-over-year (YOY) increase in the number of worldwide announced M&A deals.
Icebergs may be ahead
In Q4 2018, YOY growth in early-stage M&A activity in worldwide virtual data rooms slowed to 10 percent. At the same time, according to data from Refinitiv and Intralinks’ own analysis, the number of worldwide M&A announcements fell by 9 percent YOY, the largest decline since Q2 2012. Overall the full year 2018 saw the number of announced M&A deals fall by 3 percent YOY, the first annual decline since 2013.
Winners and losers in H1 2019
North America is expected to show the strongest growth in M&A activity in H1 2019, with the number of deal announcements forecast to rise by 5 percent YOY. Latin America is bringing up the rear, with the number of announced M&A deals forecast to fall by 6 percent YOY. The Real Estate, Energy & Power and Materials sectors are expected to show the highest growth in M&A activity, while the Healthcare, TMT (Technology, Media & Telecoms) and Industrials sectors are forecast to lag.
Private equity will continue to make a splash
In 2018, worldwide M&A valuations reached their highest levels for 30 years and the competition for deals between private equity and strategic acquirers ran red hot. PE outbid strategics in these sectors: Consumer Products & Services, Consumer Staples, Energy & Power, Technology and Retail. With over $1 trillion in dry powder, expect PE to continue to make life difficult for strategics with inorganic growth plans in 2019.
Sailing into headwinds
While there are still reasons for the M&A market to push somewhat higher in the short term (including a wall of private equity dry powder from recent record fundraisings), we believe that the pace of the current M&A up-cycle, which began in 2014, may have peaked and that dealmakers face considerable headwinds in 2019. These include: a slowing global economy, partly driven by the trade war between the U.S. and China; rising interest rates; depressed global equity markets (which fell 10 percent in 2018); sky-high M&A valuation levels; and increasing nationalism and protectionism against cross-border M&A.
The Brexit factor – known unknowns
One concern for dealmakers remains the uncertainty and potential damage to European economic growth caused by the political chaos of the current Brexit process, with an increasing likelihood of a “hard Brexit” as Britain lurches closer to leaving the E.U. on March 29 without a negotiated exit or future trade agreement with the E.U.
According to Intralinks’ recent Brexit poll of global dealmakers, the majority believe that U.K. M&A activity after Brexit will decrease as U.K. assets will become less attractive. However, a substantial minority believe the opposite: if one of the consequences of Brexit is that British companies make themselves more efficient to compete on global markets and the British government makes good on its promises to continue to make the U.K. an attractive destination for investment, perhaps by lowering taxes and streamlining regulation, then Europe’s largest M&A market may continue to thrive.
Find out more in the Q2 2019 edition of the Intralinks Deal Flow Predictor report. Independently verified as a highly accurate six-month forecast of future mergers and acquisitions announcements, the Intralinks Deal Flow Predictor is compiled by tracking worldwide early-stage M&A transactions that are in preparation or have begun due diligence.
Along with our independently verified forecasts of M&A activity in H1 2019 by region and sector, this issue of the Intralinks Deal Flow Predictor includes a spotlight feature on Britain’s departure from the E.U. and its potential impact on M&A activity, including the results of our recent Brexit poll of global dealmakers.
1 http://dmi.thomsonreuters.com/Content/Files/4Q2018_MNA_Financial_Advisory_Review.pdf. Thomson Reuters’ data on the number of announced deals for the past four quarters has been adjusted by Intralinks for expected subsequent changes in reported announced deal volumes in Thomson Reuters’ database