After three quarters of decline, US deal volume was up in the third quarter of this year, with increases in both corporate and private equity (PE) transactions, according to a PwC analysis of Refinitiv data. Despite the 4% rise in Q3, M&A volume remains down year-to-date from 2017 and 2018, which was the most active two-year period for deals in history. Sustaining those highs was likely going to be difficult, especially as the current economic expansion has endured to a point that fears of a downturn have grown.
But many corporate and private investors also still enjoy a healthy access to capital, and the recent uptick in volume may indicate that buyers won’t fully retreat even if the economy slows. What could shift is the recent wave of megadeals. Between capital availability and high company valuations, megadeals—transactions of at least $5 billion in value—flourished in 2018 and the first part of 2019. Last quarter, however, saw the fewest megadeals since early 2017, and total US deal value was at its lowest level in almost six years.
Excluding megadeals, Q3 deal value was up 8% from Q2—the second consecutive quarter in which value increased. Some of this value is in transactions just below the megadeal level, with announced deals of $1 billion to $5 billion in value increasing each of the past two quarters. Deals in this range have been spread across several industries in 2019, while private equity has accounted for one-fourth of not-quite-megadeal volume. In this capital-rich environment, some companies have determined they may not have to go to the highest level for an asset that could help drive growth.
At the industry level, technology and consumer are seeing the most deals this year. But the biggest increases in Q3 volume came in other areas, including chemicals, power and utilities, financial services, health services, and engineering and construction. And some higher-frequency sectors continue to see mostly lower-value deals. One out of 10 deals this year has been in consumer markets, but those account for only 3% of year-to-date deal value. Compare that to pharma, where megadeals have helped the sector capture 17% of overall deal value—with only 5% of total deals.
Some of the recent volume growth has been driven by acquisitions of other firms’ divested assets; health services, for instance, saw nearly twice as many divestiture-related deals in Q3 than Q2. Along with the above industries, oil and gas and pharma saw a notable jump in divestiture deals in the last quarter.
Divestitures also have become a bigger part of megadeals, with a majority of Q3 megadeals involving owners selling only parts of their organizations to buyers. Pharma is a leading example, with multiple deals. But bidding for divested businesses also has been happening in other sectors, ranging from tech to oil and gas.
Deals Leader, PwC US
Partner, Deals Sectors Leader, PwC US