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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.
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.
Deals Leader, PwC US
Partner, Deals Sectors Leader, PwC US