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M&A monitor 2019 Q2

M&A monitor

Is the end nigh (again)?

‘M&A frenzy stokes fear of market nearing top of cycle,’ read a Financial Times headline in May 2018.

One year later, Bloomberg was asking a panel of senior deal-makers whether, this time, we were really reaching the end of that cycle. Macro indicators – economic policy uncertainty, geopolitical risk, inverted yield curves, business confidence – were all pointing towards turbulent times ahead. So, the panel was asked, was now the time to call the end of a bull market that has been running largely since the West emerged from the financial crisis?

The consensus was ‘no’. After all, the same indicators were suggesting an imminent decline 12 months earlier. Deal values did drop during the second half of 2018 but this year has started with a bang. In terms of the sums spent on M&A, Q1 2019 was the second biggest opening quarter in a decade – and the combined value of $10bn+ transactions announced in the first six months of the year has only been surpassed once since 2009.

While there are several factors weighing on deals, there are even stronger forces acting in the opposite direction. Debt is cheap and readily available. Private equity funds are sitting on record amounts of dry powder. Buoyant (albeit volatile) public markets raise the possibility of all-stock mergers. The threats and opportunities of digital disruption mean businesses must buy to survive.

It’s true there are reasons to pause. Much of this year’s activity has been domestic, with the number of cross-border deals in Q2 (on the back of increased protectionism and the escalating US/China trade war) the lowest since 2013. Fluctuating equity markets make deal pricing more difficult. And the run of big-ticket mergers masks a drop in the number of $1bn–$10bn transactions, which typically sustain the wider M&A industry. Whether this pattern continues remains to be seen. But for the time being at least, reports of M&A’s death appear to have been exaggerated.