Private equity on the rise
With more than 4,000 US deals, private equity acquisition volume in 2018 was at its highest ever, according to Thomson Reuters data. In addition to a 9% increase in volume from the previous year, PE deal value surged 41% to more than "$347 billion—the most since 2014. Helping boost transaction value were 12 announced PE megadeals, double the number in 2017.
PE firms were most active in technology and consumer markets, with deals in those sectors accounting for more than 40% of US deal volume. Sectors drawing the most PE investment by value were tech, media and telecom, real estate and oil and gas.
More money in IPOs and venture capital
US IPOs continued their rebound in 2018, with volume and value both up from 2017, according to PwC’s US Capital Markets Watch. Even with a slowdown in the fourth quarter—due to volatile equity markets, trade concerns and uncertainty around Brexit—2018 saw more than 200 US IPOs, nearly one-third of them in pharma and life sciences. The combined US IPO value of $54.4 billion was up 24% from 2017, with more than one-third in tech, media and telecom offerings.
In other investment, venture capital funding mirrored M&A trends with more money and fewer deals, according to the latest PwC MoneyTreeTM report. At $99.5 billion, 2018 US VC funding was up 30% and the highest since 2000, while the number of transactions was down 5% to 5,500: the lowest since 2013. A record 53 US VC-backed companies saw their valuations rise to more than $1 billion.
US buyers drive cross-border acquisitions
Amid trade tensions, growing scrutiny of foreign investment in US companies and other geopolitical issues, cross-border deal volume was mostly flat in 2018. An 11% decline in activity from Q3 to Q4—including an 18% drop in deals for US targets—led to a slight dip in volume for the year compared to 2017, although outbound acquisitions by US buyers were essentially the same. With nearly 3,800 transactions, cross-border deals accounted for more than one-fourth of all M&A, similar to recent years.
By comparison, cross-border deal value rose by 17% last year, powered almost solely by a 34% increase in outbound US deal announcements. While outbound deals were 27% of cross-border deal value in 2016 and 47% in 2017, they were 54% in 2018—the most in a decade. Deals by US companies for non-US-based assets ranged from Comcast-Sky to International Flavors & Fragrances-Frutarom to Coca-Cola-Costa.
Despite somewhat strained political relationships between the US and other nations, deals by and for US companies still span the globe. Canada and the United Kingdom continued to represent the most US cross-border deal flow by far in 2018, followed by Australia, India and Germany. All but Canada saw significantly more acquisitions by US buyers of companies in their countries than inbound US deals, with notable declines in deals for US assets by acquirers in Germany, China and France.
What’s next for deals
With abundant capital and a healthy appetite for M&A, dealmakers enter 2019 and the New Deal Frontier focusing on where acquisition targets will come from. Start-ups and privately-owned companies remain options, but many would-be buyers continue to watch conglomerates and large corporations as they review their growth strategies and consider selling or spinning off certain businesses.
US divestitures in 2018 posted their lowest volume in five years, but that could change given the current high valuations and the potential returns of a strategic sale to a corporate or PE buyer. Last year showed both groups are willing to make large investments for the right assets. And the capital outlays could become more moderate if a cooling economy starts tamping down valuations.
For more on the current deals landscape and outlook for the coming months, read the latest Deals Industry Insights commentary by John Potter, US Deals Sector Leader.