Deals industry insights

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Q4 and full-year 2019 update: Rebound or retreat? Dealmakers navigate a hazy economic forecast as 2020 begins

As a record-setting economy marches on, will 2020 be when it finally slows significantly? Or will dealmakers face a fundamentally different situation, where what happened in previous cycles doesn’t apply today? The expansion already has made history, and if it continues through this year – more than 11 years after the end of the Great Recession – we’ll be well into uncharted territory. But as various indicators have shown, there’s also potential for a slowdown – if not an actual recession, then a more sluggish economy that feels like one. And companies that want to emerge stronger need to be prepared. M&A activity already has ebbed slightly, which isn’t unheard of given the record highs of recent years. The question is if that decline continues or if corporate and private investors face a new normal in pursuing growth.

With roughly 2,700 announced transactions, US deal volume in the fourth quarter of 2019 was down 15% from Q3. But deal value increased 23% to more than $407.5 billion, which also topped Q4 2018. On the year, 2019 saw 12,370 deals involving US companies. That’s 14% less than the previous year and comparable to 2014 and 2015, before US deal volume surged to its highest point of the century – more than 15,000 transactions in 2017.

A few industries saw similar or higher deal volumes in 2019, including aerospace and defense, banking and capital markets, and transportation and logistics, while real estate had only a slight drop. The biggest volume declines were in mining, metals, forest, paper and packaging, and power and utilities – all down more than 30%. Other sectors that typically see much more activity, such as consumer markets, manufacturing, media and telecom, and technology, saw decreases ranging from 10% to 22%.

US deal value in 2019 was slightly more than $1.9 trillion, down 8% from 2018 but higher than each of the previous two years. Much of that was in 61 megadeals – transactions of at least $5 billion in value – which was 16 fewer than in 2018. With multiple megadeals, the pharma sector lapped the field, more than tripling the previous year’s deal value. Aerospace and defense saw a giant increase in value due almost entirely to one historic deal, and real estate and banking and capital markets also posted notable value gains in 2019.

Top sectors for FY19 deal volume and value

CEOs across sectors brace for slower economy but feel good about longer-term business growth

Management confidence will be a factor in companies’ appetite for acquisitions in 2020, especially if the economy slows. In PwC’s 23rd CEO Survey, executives in the US and globally voiced much more concern about economic growth than in previous years, and confidence in their companies’ revenue growth this year also was down, although still mostly positive. But confidence in revenue growth over the next three years was largely the same as in the previous survey, suggesting CEOs view any looming economic and business challenges as potentially short-lived.

Plans for M&A in the year ahead also remained mostly consistent, with US and global interest in deals both shifting only slightly from the previous survey. One factor in that steadiness may be historic amount and mix of capital available for investment. More than 60% of CEOs globally and about three-fourths of US CEOs said they weren’t worried about access to affordable capital. Concern was lowest among executives in the automotive, insurance, consumer goods and retail sectors, while banking and capital markets, energy, technology, and transportation and logistics voiced slightly more worry. Capital availability could be more critical in some sectors if a flagging economy spurs an increase in restructuring activity.

Companies planning M&A by industry in 2020

Tech is both a top target and buyer in M&A

As the Fourth Industrial Revolution (4IR) continues to unfold, more companies are determining how emerging technology can help drive growth and bring efficiency to their businesses. Among US sectors, tech firms were the top acquisition targets in 2019, with deals for tech businesses representing 20% of all industry-related transactions.

Tech also was a big driver of cross-sector deals, which accounted for almost 40% of last year’s industry M&A volume. Well over 500 acquisitions of tech firms were by companies in other sectors, with media and telecom and consumer markets the most active buyers. That interest in tech from other sectors remains strong in 2020, as shown by a recent financial services company megadeal for a tech startup.

And tech companies, especially big tech, aren’t being confined to their own industry when it comes to deals. With potential shifts in antitrust regulations, either through bipartisan efforts this year or the possibility of a new presidential administration in 2021, tech giants are considering where else they could find growth. Nearly one-fourth of media and telecom acquisitions and close to 10% of deals for consumer markets companies were by tech buyers. In all, of nearly 1,500 acquisitions by tech companies in 2019, more than 400 – about 28% – were for businesses in other sectors.

Acquisitions outside the US account for less value

Similar to overall deal volume, US cross-border activity has slowed. The number of cross-border deals in Q4 2019 declined 10% from the previous quarter and was the lowest quarterly volume in almost six years. Deal value rebounded in the fourth quarter after falling throughout 2019, with $111.3 billion representing an 18% increase from Q3.

On the year, 2019 cross-border volume was 13% lower than 2018, although cross-border as a percentage of overall US deal volume was consistent with previous years. Cross-border deal value declined 20% to $456.3 billion, entirely due to a substantial drop in outbound deal value. While outbound volume fell by 9%, outbound value dropped substantially more – about $117 billion, or a 38% decrease. Some of that could be due to outbound deal value being higher than usual in 2018, but 2019 value also was lower than each of the four years before then.

Technology, consumer markets, media and telecom, manufacturing, and pharma saw the largest outbound deal volumes in 2019, but all of those numbers were down from the previous year – some as much as 20%. Instead, increases in outbound transactions came in smaller pools of US buyers, such as real estate, hospitality and leisure, banking and capital markets, and transportation and logistics. US private equity firms also kept mostly the same level of outbound deal traffic in 2019.

What’s next for deals

  • M&A opportunities should be available in a downturn, but it may not make much difference if a company doesn’t take proactive steps before then. Corporate and private investors that expect to endure a downturn and emerge poised for solid growth should reassess and adjust their portfolios and capital structures, as well as determine how customer needs and workforces will need to be managed in a slower cycle.
  • Artificial intelligence (AI), 3D printing and other 4IR technologies are gaining traction in many industries, but they also can test traditional deals processes. From due diligence to integration, non-tech companies need to ensure they’re not simply going through the motions while seeking access to drastically different types of businesses.
  • While looking closer to home is an option, US acquirers also should consider how cross-border deal strategies need to adapt for strained relationships between the US and other large markets, and if there are investment opportunities in other regions that continue to emerge in a different global economy.
  • For more on the current deals landscape and outlook for the coming months, read the latest Deals Industry Insights commentary by John D. Potter, US Deals Sector Leader.

Contact us

Colin Wittmer

Deals Leader, PwC US

John Potter

Partner, Deals Sectors Leader, PwC US

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