Despite political and economic uncertainty, the global M&A market remained resilient in 2019. Will the market hold in 2020? And what trends can we expect the see in transactions across different regions and sectors? A complex array of factors influenced the M&A market over the last twelve months and will continue to do so. With US elections looming in November, and the finer details of Brexit still to be worked out, 2020 promises to be as unpredictable as 2019. Levels of private equity investment remained high in 2019, and there’s no reason to believe that PE firms will lose their appetite for investment. However, the rate of cross‐border deals has slowed globally and will continue to do so, with the US market in particular, turning inward. Two trends that defined the M&A market in 2019 will undoubtedly continue into 2020. Firstly, the drive to build scale will continue to drive the M&A sector in 2020. Secondly, tech will continue to be a popular investment choice in 2020, creating new opportunities for M&A. As companies work to keep pace with technological change, many will opt to merge with or acquire tech firms, rather than develop new technologies in‐house. The coronavirus outbreak has made global headlines in recent weeks and may likely affect investor confidence, as the implications of the outbreak are weighing heavily on global supply chains. Besides factors influencing the global market, what kind of M&A trends can we expect to see across regions in 2020? Our Transaction Advisory team shares their expectations by region, as we take a closer look at local and sector specific trends.
North America
The North American M&A market remained strong in 2019. Deal valuations held steady and public companies and private equity investors remained aggressive in their pursuit of high‐quality private companies aligned with their strategic and investment objectives. Favourable borrowing conditions from lenders continued, with debt utilisation still high but falling slightly in Q3. The industrial, manufacturing and software sectors all performed well. Companies with less exposure to tariffs or the economic cycle have been particularly attractive to private equity buyers. There was also some pullback in construction and oil & gas activity in the second half of 2019. Despite a new trade deal between the USA and China, concerns related to the trade conflict are expected to continue in 2020. This year also sees a US Presidential election which will likely result in some tentative investing during the second half of the calendar year as the race intensifies. Capital still remains relatively cheap and attainable. The yield curve has reversed in recent months, and there is no longer a sense that a recession in the USA is inevitable. Increasingly there are more independent sponsors and family offices entering the market. Smaller investors have the advantage of being more nimble and are generally able to take control of an investment indefinitely. Anant Patel, Global Transactions Advisory Leader: “Typically, I would have expected more companies to try to close end of 2019 or Q1 2020, as often an election year is a bit of a pause button due to the uncertainty it brings. However, there seems to be less of a concern this time around. There doesn’t seem to be any slippage or shortage of interest in the M&A market. Where I thought 2020 would be a softer year, and it may still prove to be correct, so far it doesn’t appear to be the case as I speak to others in the sector. In Q4 of 2019 we did see an increased level and depth of due diligence on transactions by the buyers. This does suggest that buyers who appear still be have a large appetite to close deals are spending more time to ensure they are comfortable with the acquisitions” While the European economy is weakening, in North America tax cuts – and a relatively strong US economy – strengthened the 2019 deals market. While Brexit has yet to have much impact on the North American markets, we would expect there to be continued unease regarding cross‐border deals involving North American companies interested in transactions involving entities in the United Kingdom.Click here to learn more.
