Global M&A value up in 2018, deal count down for first time since 2010: report

Cheap financing, pressure on companies to consolidate, and competition from sponsors drove the value of global merger and acquisitions (M&A) in 2018, though the number of deals struck fell for the first time since 2010, deal intelligence service Mergermarket said in a report on Friday (Jan 4).

Globally, the value of M&A deals rose 11.5 per cent to US$3.53 trillion (S$4.8 trillion) from a year ago, making it the third-largest year on Mergermarket record by value since 2001.

Average deal size also saw its second-highest total value on record with US$384.8 million, just slightly below the US$400.3 million peak attained in 2015. This was in part due to the presence of 36 megadeals (defined as those larger than US$10 billion in value) in the year, six more than in 2017.

As companies - fuelled by a need for greater equity value - felt the pressure to consolidate, firms often found themselves competing for targets of the highest quality, pushing up valuations, the report noted.

"Comcast's eventual US$51.5 billion Sky takeover was a case in point where the Pennsylvania telecoms giant ended up paying considerably more than its starting offer in an effort to beat rival bidder Twenty-First Century Fox," the report stated.

Other notable megadeals that rounded up the year include Takeda Pharmaceutical's US$79.7 billion takeover of UK-listed Shire plc, as well as T-Mobile USA Inc's merger with Sprint Corporation in a deal worth some US$60.8 billion.

Further, the continued availability of cheap financing due to historically low interest rates in the post-crisis period aided much of the capital needed to fund bidding wars, particularly in the private equity space, the report added.

Two sectors in the spotlight included energy, mining and utilities (EMU) which hit a value of US$673 billion, as well as construction, which reached a new decade high of US$116.5 billion, driven by private equity plays and infrastructure bids.

That said, 2018 also saw the number of deals struck fall for the first time since 2010 to 19,232 after rising steadily for close to a decade.

"With so many market-moving factors fluctuating throughout the year, mergers and acquisitions have understandably had a somewhat ambivalent 2018. Intensifying trade tensions, political instability, and increased regulatory scrutiny took their toll on the number of deals struck over the year, though deal values remained relatively high," noted Mergermarket research editor (Americas) Elizabeth Lim.

Closer to home, deal-making in the Asia-Pacific ex-Japan was robust in 2018, with the region recording 4,036 deals for a combined total of US$717.4 billion. These represent a 2.6 per cent increase in deal value, though deal count fell by 42 from the previous year. The largest deal of the year for the region was the US$16 billion acquisition of Indian online retailer Flipkart, by retail giant Walmart.

Additionally, Asia-Pacific outbound M&A was buoyant, while inbound M&A experienced mild growth. The value of outbound transactions reached US$160 billion in 2018, posting a 52.4 per cent increase compared to 2017. Meanwhile, foreign investment into Asia-Pacific ex-Japan reached US$122.5 billion, or a 4.4 per cent increase from the preceding year.

Industrials and chemicals was the most attractive sector in 2018 by both value and volume, while the pharma, medical and biotech sector was also in focus with a dramatic uptick in the fourth quarter to help the sector reach an annual value of US$41.3 billion, up 63.8 per cent from 2017.

Private equity firms remained active, despite buyout activity experiencing a dip, with 514 deals worth US$124.1 billion announced in 2018 - a 3.4 per cent decrease by value from a year ago. This was largely due to a weak fourth quarter when value and deal count both shrunk, the report noted.

The largest buyout deal in 2018 was the US$14 billion acquisition of Chinese payment company Ant Financial by a consortium led by GIC.