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Americas M&A Update: Q1 2019

Mark Williams, Chief Revenue Officer, Americas

Mark Williams

M&A deal value climbed higher in North America last year, as acquirers took advantage of strong balance sheets and ample access to financing to get deals done. Total M&A value in the region reached US$1.61trn, representing a 13.8% increase. The picture was rather different in Latin America, where deal value fell 25.3% to US$72.6bn, amid economic and political instability.

Dealmakers have been active across sectors – the top 10 deals in North America last year included targets in seven different industries. Energy, Mining & Utilities held the top spot for M&A value at US$388.5bn, thanks in part to two mega-deals worth more than US$30bn each. Technology came in second at US$235.9bn in deal value, with the top deal being IBM’s US$32.5bn acquisition of software maker Red Hat in October.

Economic conditions in North America appear rosy on the surface, with unemployment and interest rates low and the economy growing at a steady pace. Yet the prospects for the M&A market over the year ahead remain ambiguous. Business leaders are keeping a close eye on global trade disputes, slowing growth in China, and the effects of Brexit, among other developments.

The ambiguity is reflected in responses to Merrill Corporation’s 2019 Corporate Development Outlook poll conducted in January. Among more than 300 respondents in the Americas, 48% said the M&A market is headed in a neutral direction, compared to 39% who said it is trending positive and 14% who see it moving down a negative track.

Evidence from the first month of the year supports this mixed view of the market. On the one hand, US equity prices fell in late January after several bellwether industrial and technology companies announced earnings below expectations, including equipment manufacturer Caterpillar and chip maker Nvidia. At the same time, a majority of companies to report earnings in the first four weeks of the year actually beat their targets.

Internationally, investors have been spooked by the increasingly chaotic situation in Venezuela, sluggish corporate performance in Europe, and the slowing pace of economic expansion in China. All three trends have the potential to affect the US economy in significant ways, and dealmaking in turn. The ongoing trade dispute between the US and China also threatens to drag down growth.

Indeed, in our corporate development survey, 54% of respondents in the Americas singled out the US-China trade war and tariffs as the business risk most likely to climb farther up due diligence checklists this year. Just over 26% said data privacy concerns emerging at Facebook and other technology giants would also become a bigger factor.

But ultimately, market participants see upside even in the recent slowdown. For instance, 47% of our poll respondents said valuations have become more sensible over the last several months – providing much-needed relief to M&A buyers amid a period of frothy prices. With plenty of investment dollars waiting to be put to work, the slump may actually push some acquirers to redouble their efforts to source deals. As always, we’ll be monitoring the market to keep you informed of the latest trends and data as they become available.