Mega deals set the pace for mergers and acquisitions (M&A) globally in the second quarter of 2019, as large U.S. companies defied trade row jitters and seized on strong equity and debt capital markets to agree on transformative combinations.
Global M&A volume reached $842 billion in the second quarter, down 13% and 27% from the first quarter of 2019 and second quarter of 2018 respectively, according to preliminary data from financial data provider Refinitiv.
Geopolitical risks that weighed on dealmakers’ confidence, such as the trade dispute between the United States and China and the potential for a military confrontation between the United States and Iran, were partly offset by supportive financing markets that made big acquisitions possible.
This quarter’s volume would have been significantly lower were it not for U.S. mega deals, given that total deal count globally fell to its lowest quarterly level since the 2008 financial crisis, Refinitiv data showed.
“The vast majority of transforming deals worth more than $10 billion have taken place in the U.S. This means Europe is lagging behind, and while U.S. companies are doubling in size, their European counterparts risk losing their competitive edge,” said JPMorgan Chase & Co (JPM.N) global M&A co-head Hernan Cristerna.
Among the top deals this quarter were the $121 billion agreed merger of United Technologies Corp’s airspace division with U.S. contractor Raytheon Co (RTN.N), U.S. drugmaker AbbVie Inc’s (ABBV.N) $63 billion agreement to acquire peer Allergan Plc (AGN.N), and Occidental Petroleum Corp’s (OXY.N) $38 billion deal to buy Anadarko Petroleum Corp (APC.N).
U.S. M&A totaled $466 billion in the second quarter, down just 3% from a year ago. Dealmaking in Europe, however, plunged 54% to $152 billion, while Asia M&A dived 49% to $132 billion.
Some attempts at big European mergers, such as a tie-up of auto makers Fiat Chrysler Automobiles BV (FCHA.MI) and Renault SA (RENA.PA), as well as of Deutsche Bank AG (DBKGn.DE) and Commerzbank AG (CBKG.DE), failed amid political resistance and concerns over regulatory scrutiny.
“Every quarter that goes by without progress in combining European companies and helping them adjust to technological and geopolitical disruption means there will be pent-up supply and demand for deals down the line to achieve that adjustment,” said Perella Weinberg Partners LP founding partner Paulo Pereira.
Cross-border M&A also suffered because of the trade jitters. It has been over 400 days since a cross-border deal of more than $20 billion has been announced, said Citigroup Inc (C.N) global M&A co-head Cary Kochman.
“The ease with which corporates approached globalsation has waned. In its place are regional models and the realignment of domestic supply chains,” said Kochman.
Dealmaking by private equity firms soared to $136 billion, almost an all-time high, as cheap debt fueled leveraged buyouts.
Some dealmakers now say they see confidence in smaller companies to explore M&A following the wave of mega deals, which may lead to a bump in the number of transactions.
“What we have seen so far this year is a steady number of mega deals, and all signs suggest this will continue,” said Morgan Stanley (MS.N) Americas head of M&A Tom Miles.
“But what is also beginning to happen is that smaller and mid-sized companies, that were nervous about pursuing deals early in the year, are now feeling comfortable enough with the economic environment to also explore M&A,” Miles added.