Global Dealmakers Hit Pause

Rising protectionism dented cross-border M&A.

Dealmakers weren’t in a hurry to cross borders in 2019.

While last year was the fourth biggest on record for worldwide mergers and acquisitions, cross-border deals declined by 25%, to a six-year low, and M&A fees were down 12% from a year earlier, according to Refinitiv Deals Intelligence. However, global debt totals continued to soar as interest rates remained enticingly low. High-yield debt issuance rose 54%, while overall debt capital markets activity was up 14%, reaching a record high.

Worldwide total debt rose by $9.6 trillion in the first three quarters of 2019 to $253 trillion, or a record 322% of global GDP, according to the Institute of International Finance (IIF). “Spurred by low interest rates and loose financial conditions, we estimate that total global debt will exceed $257 trillion in the first quarter of 2020, driven mainly by non-financial sector debt,” the IIF said.

Worries about the debt ramp-up are increasing.

The World Bank warned recently that “the largest, fastest and most broad-based accumulation of debt since the 1970s” is a threat to global economic growth, which fell to its lowest rate since the financial crisis.

Cross-border M&A, however, totaled just $1.2 trillion in 2019, the lowest in six years, reflecting rising protectionism. The US accounted for 20% of all cross-border acquirers and 25% of cross-border targets, according to Refinitiv. This number is just slightly lower than the numbers recorded in 2018.

Leading bankers aren’t expecting a major revival anytime soon. “We expect 2020 will be an active market, which will not vary dramatically from the volumes we’ve seen in 2019,” says Hernan Cristerna, global co-head of M&A at J.P. Morgan. “It also should be a disciplined market, with corporations looking at their core competencies, prioritizing strategic deals and scrutinizing the use of their balance sheet.”

The outlook for cross-border deals could depend on further easing of US-China trade and investment tensions, analysts say. China’s promise to open new sectors to international investors could provide a boost, but investors are not counting on it.