Year-End Dealmaking Surge Reflects Improved Sentiment

2019 was a strong year for M&A activity.

A series of mega-mergers late last year failed to produce a record year for global dealmaking, but 2019 was still one of the top four for M&A, as downside risks to the economy faded and the urge to merge for competitive reasons remained strong.

As of mid-December, the value of announced worldwide M&A in 2019 was $3.7 trillion, down 7% from the same period a year earlier, according to data and analytics firm Refinitiv.

US stocks rose to record highs in December, amid growing optimism about the US and Chinese economies, although Europe remains weak. Phase one of a US-China trade deal, a reduction of Brexit uncertainty following Boris Johnson’s sweeping victory in the British election, and a Federal Reserve that seems unlikely to raise interest rates anytime soon, all contributed to an easing of fears of a global slowdown.

“The major theme in recent months is the extent to which downside risks have faded,” Barclays analysts state in their latest global outlook. However, they added: “Fewer downside risks do not imply upside growth surprises,” particularly when the US expansion is getting on in years and the euro area faces structural growth issues.

Nevertheless, global mergers involving industrial companies hit an annual record of $438 billion in December, while M&A deals in the Middle-East region were up 154% from the same period a year earlier, led by Saudi Aramco’s $70 billion purchase of a 70% stake in Sabic, one of the biggest deals ever in the chemical industry.

Among the largest transactions in the year-end period, Charles Schwab acquired rival discount brokerage TD Ameritrade for $26 billion. European luxury conglomerate LVMH Moet Hennessy Louis Vuitton bought US jeweler Tiffany for $16.6 billion. Swiss pharmaceutical company Novartis purchased The Medicines Company, a biotech, for $9.7 billion.

While some of the optimism could spill over into this year, analysts at Baker McKenzie forecast a 25% drop in global M&A in 2020, due to ongoing economic uncertainty and the threat of recession. North America remains a relative bright spot, however, with technology, investor activism and private equity deals taking center stage, according to the firm’s annual Global Transactions Forecast, published in conjunction with Oxford Economics.

“We know that around the world, there are many investors and companies with capital on the sidelines, waiting to move forward with domestic and cross-border deals,” says Ai Ai Wong,  a member of Baker McKenzie’s Global Executive Committee and chair of the Asia-Pacific region.

Asia-Pacific dealmaking has fallen from 2018’s highs, due to a significant slowdown in cross-border activity. Baker McKenzie says the US-China trade dispute was clearly evident, as well as sluggish Chinese outbound deals due to the government’s scrutiny of outbound investment by private firms.

In December, China’s State Grid agreed to purchase a 49% stake in Oman’s Electricity Holding Company for an estimated $1 billion to promote China’s Belt and Road Initiative. State Grid, the world’s largest utility, could be regaining its once healthy appetite for overseas deals.

Baker McKenzie expects overall growth conditions to improve by sometime in 2021 and predicts a subsequent uptick in transaction activity.