M&A activity slowed in 2017, and this year could be no better
By Ryan Vlastelica
Global deal activity was down 3.2% in 2017
U.S. dividend payouts are at records (http://www.marketwatch.com/story/a-record-amount-was-spent-on-sp-500-dividends-over-2017-and-2018-could-break-that-record-2018-01-03) and stock buybacks are growing (http://www.marketwatch.com/story/sp-500-buybacks-up-15-in-the-third-quarter-as-apple-buying-spree-continues-2017-12-13), but a third corporate activity--commonly done when cash levels are high, as they are currently (http://www.marketwatch.com/story/why-returning-cash-to-shareholders-hasnt-been-good-for-shareholder-returns-2017-10-27)--isn't getting much action in the current environment.
Despite some recent blockbuster deals, global merger and acquisition activity has slowed, and this trend may not be reversed in 2018.
In terms of total deal value, global activity fell 3.2% to $3.15 trillion in 2017, down from 2016's record haul of $3.26 trillion, according to data and news outfit Mergermarket. There were 18,433 deals over the course of the year, down from the previous year's total of 18,592, "as uncertainty appeared to take its toll on investments," Mergermarket wrote in its report.
In the U.S., there were 5,326 deals, with a combined value of $1.26 trillion. This was the second straight year where U.S. activity declined; in 2016, there were 5,325 deals, with a combined valued of about $1.5 trillion. U.S. deal activity accounted for 40.2% of global value, the lowest percentage since 2012, and down from 45.5% in 2016.
There were some positive notes: U.S. deals this year carried an average size of $352.9 million, the second-highest annual average in Mergermarket's dataset, which goes back to 2001. Separately, activity picked up in the final month of the year, when there were five "megadeals"--valued at more than $10 billion--announced in December. The combined value of the month's deals was $189.1 billion, the most of any month since July 2016.
Among the notable deals of 2017, CVS Health Corp. (CVS) bid to buy Aetna Inc (http://www.marketwatch.com/story/cvs-aetna-merger-makes-a-lot-sense-as-amazon-enters-market-analysts-assess-the-deal-talk-2017-10-27). (AET) for $67.8 billion and Walt Disney Co. (DIS) agreeing to buy key assets of 21st Century Fox (FOX)in a $52.4 billion deal (http://www.marketwatch.com/story/disney-to-buy-key-21st-century-fox-assets-in-524-billion-deal-2017-12-14). Separately, Kraft Heinz Co. (KHC) offered to buy Unilever PLC (ULVR.LN) for $143 billion, though it subsequently dropped the proposal (http://www.marketwatch.com/story/kraft-heinz-withdraws-bid-for-unilever-2017-02-19).
Related:Why the Disney deal suggests the tax bill may mean little for the economy (http://www.marketwatch.com/story/why-the-disney-deal-suggests-the-tax-bill-may-mean-little-for-the-economy-2017-12-14)
Read more about why there may be few blockbuster deals going forward (http://www.marketwatch.com/story/heres-why-aetna-cvs-may-be-the-last-blockbuster-deal-you-see-for-a-while-2017-10-27)
"Congress' recently passed tax legislation, which included a sizeable cut to the U.S. corporate tax rate, has fueled anticipation over how future tax savings might be spent over the next several years, particularly with regard to M&A," wrote Elizabeth Lim, Mergermarket's research editor for the Americas. "U.S. dealmaking therefore, while still cautious in today's political climate, has continued at a steady pace."
Other analysts were more skeptical of the outlook for global activity.
Bryan Adams, a director at FactSet who develops the company's global M&A research, wrote that global M&A "has been contracting and is expected to continue that path for the next six to 12 months, with some expected regional variability." He added that there were "two major unknown variables" in the M&A outlook, including "include the severity of a potential market correction and the unwinding of central bank balance sheets."
For the U.S. specifically, he wrote that M&A activity typically ran in cycles, with 30 months of growth followed by 30 months of contraction. "We had 25 months of growth ending in May 2016, and we are only 16 months into contraction."
-Ryan Vlastelica; 415-439-6400; AskNewswires@dowjones.com
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01-03-18 1442ETCopyright (c) 2018 Dow Jones & Company, Inc.