Global Deals Set Record, Despite Trade Tensions

Trade wars are not denting M&A activity overall.

Worldwide mergers and acquisitions hit a record $3.3 trillion in the first nine months of 2018, and cross-border deals had their strongest first nine months since 2007, according to Thomson Reuters.

Cross-border deals totaled $1.3 trillion in the first three quarters of 2018, a 56% increase compared to the same period a year earlier. That growth was faster than the overall increase in global M&A of 37% year to date.

The nine-month total for 2018 includes 100 megadeals worth more than $5 billion each, which matches the record total of 100 megadeals in the first nine months of 2007.

While the number of worldwide deals declined by 9% year to date to a three-year low, in the volatile emerging markets, the value of announced deals rose 12% in the first nine months of 2018 from the same period a year earlier.

There are, however, “tensions in the air,” and protectionist policies could quickly spill over into more targeted attacks on investment flows and export controls, or even currency devaluation, according to a recent report by BNP Paribas.

“The US has taken a fundamental stance against ‘unfair’ practices facilitated by China’s government-led model and looks unlikely to turn down the volume,” the bank’s strategists say.

This year’s Mergermarket global M&A roundup says the third quarter’s dealmaking activity was subdued, “as growing geopolitical tensions, trade wars and protectionism dampened spirits and caused corporates to pause over the summer.”

The report cited a distinct lack of big-ticket deals in recent months. There were only four deals worth more than $10 billion each in the third quarter, following 28 such deals in the first half of this year.

“With tariffs introduced by the US and China and political protectionism creeping further into dealmaking considerations, advisors are having to contend with much harsher conditions,” states Mergermarket. “This is now leading corporates to consider more defensive domestic consolidation, bulking up in challenging times, while the [domestic] deals will receive much lower levels of scrutiny.”

Consequently, domestic US M&A increased by 30.6% to a record $1.67 trillion in the first nine months of this year.

According to Mergermarket, changing consumer habits are continuing to impact corporate decision-making. It cites two of the most high-profile deals in the third quarter: Coca-Cola’s $5.1 billion acquisition of Costa, and the $3.2 billion takeover of SodaStream by PepsiCo.

These deals demonstrate how rising consumer health-consciousness and environmental ethics have caused companies to rethink their business models, a trend that is likely to continue, according to Mergermarket.

The energy, mining and utilities sector was the most active for M&A activity in the US in the third quarter, as the industry continued to consolidate in a rising oil-price environment. Several other sectors saw record M&A values, including business services, real estate and construction.