As the headlines insist, the M&A market is on the cusp of setting record numbers for 2018. Per the WSJ, if M&A activity keeps its current pace, it is on track to surpass the record-setting year of 2007. Moreover, should this strong activity continue, “there would be a total of $4.8 trillion worth of mergers and acquisitions for the full year, beating the prior record of $4.3 trillion set in 2007.” Yet, comparing 1H 2018 with 1H 2017, and the volume of deals has declined by 5%. All this could lead to an interesting situation, where the value of deals are record setting, not the volume of deal activity.
As noted in the WSJ piece, volatility and other factors can have a direct impact, but “the M&A market is notoriously unpredictable and any number of factors could derail the record run. High valuations, for example, can be a double-edged sword. Elevated stock prices often embolden CEOs to make deals, but they also make transactions more expensive, and that can stifle activity.” Moreover, comparing this current period with that of 2007, “at this point in 2007, there was a bit more activity than there is now and, indeed, some dealmakers expect a slowdown in the second half like there was that year.”
Will 2018 best 2007?
Obviously, this is not a question to answer today, but so far 2018 deal volume is not eclipsing 2017. As noted earlier, there is a 5% year-over-year decline in the first half of 2018. Furthermore, of those 2018 deals, 121 traded over $1B in EV, compared with 132 deals in 2017. Despite there being fewer deals in 2018, they could be priced a lot higher than the 2017 deals, causing the value of 2018 deals to be higher than 2017.
Interestingly, during 1H 2017 there were nearly 590 active sell-side intermediaries, which compares to approx. 565 active sell-side intermediaries in 1H 2018. As we enter the home stretch of 2018 – and, perhaps avoid a few political and economic backlashes – we can start to paint a better picture of where 2018 will fall. Anecdotally, the market is on fire, but the data will tell a broader, unbiased story.
Of deals that closed in the first half of 2018, 16% traded in the Mid-Atlantic, followed by Pacific West (15%), and Great Lakes (13%). Top cities for this six-month period include New York, San Francisco, Chicago, Houston, Austin, Atlanta, and Toronto.
During the first half of 2018, 11% of deals involved a private equity seller, with 58% of those PE exits trading to a peer private equity investor. Digging deeper, 78% or 199 of these PE-to-PE investments were intermediated with a confirmed sell-side advisor. Looking at those sell-side intermediaries, 15 were involved in 4 or more transactions in the first half of this year, and 7 were involved in ten or more PE-to-PE trades in this six-month period.
As it stands, the first half of 2018 did not come close to the deal volume of 2017, yet it does take time for the data to manifest and then to analyze the findings. There have been a number of bulge bracket deals closing this year, and particularly with peak valuations and record dry powder, this year may still break the record for mergers and acquisitions.
Last week’s deals today
August 13 – August 17, 2018
~94 deals traded
Deal of the week
AT&T Inc. completed its acquisition of the New York- based AppNexus Inc. for more than $1billion. AppNexus provides buyers of online ads with gateways to ad exchanges and inventory aggregators. Both Goldman Sachs and J.P. Morgan Chase acted as the sell-side financial advisors, with Goodwin Procter providing sell-side legal advisory services.
Most active subsectors
- IT: Software & services
- Services: Data & Information
- Construction: Services
- Industrial: Equipment & products
- Financial: Services
Most active cities
- New York
- San Francisco
- San Diego
- Santa Clara, CA