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American M&A rose as European and Asian transactions declined sharply

Dealmakers outside the US cast an envious eye towards their American counterparts in 2019. As cross-border mergers and acquisitions plummeted to their lowest level since 2013, US companies struck big transactions at home, accounting for 15 out of the year’s biggest 20 deals.

Nearly half of the $3.9tn in global M&A recorded this year involved US targets — a 6 per cent rise from a year ago, according to data provider Refinitiv. The boom in the US contrasted with lacklustre dealmaking in European and Asian markets, which recorded $742bn and $757bn respectively in total acquisition value, a 25 per cent decline for Europe and a 16 per cent drop for Asia.

The US activity was enough to power global M&A to its fourth-highest level on record. The deals were broad-based, spanning transformative pharmaceutical acquisitions like Bristol-Myers Squibb’s $93bn purchase of rival drugmaker Celgene and AbbVie’s buyout of Allergan for $84bn, and industrial tie-ups such as United Technologies’ $90bn deal to buy Raytheon.

Other marquee mergers agreed in 2019 included the largest oil takeover in a decade, when Occidental Petroleum clinched its $54bn purchase of rival Anadarko, and the biggest bank deal since the financial crisis, as regional banks BB&T and SunTrust agreed to combine in a $66bn deal.

By the end of the year, some of Europe’s largest companies found opportunities to muscle into the US market. France’s LVMH agreed to buy US jeweller group Tiffany & Co for nearly $17bn and Swiss drugmaker Novartis acquired the Medicines Company for $9.7bn.

Anu Aiyengar, head of M&A in North America for JPMorgan Chase, said the concentration of activity in the US highlighted the risks faced by European companies, which have not captured the benefits of M&A-driven growth and scale. “Of the top 50 companies by market capitalisation a decade ago, 16 were European. Now, only seven are. This is a stark statistic. Is Europe getting left behind in this consolidation game?”

She added: “Some European companies have the opportunity and the licence to go and do deals. Those that were able to did so from a position of strength. I feel there is impetus for European companies to do more, as we are going into a period of higher uncertainty and in those periods scale matters more.”

Europe struggles

The difficulties of dealmaking in Europe were underscored by Fiat Chrysler Automobiles, which failed to complete a June deal with its French rival Renault after interference by the French government. FCA returned months later with plans to merge with Peugeot, its other French rival.

Ireland’s Kerry Foods was also thwarted, but not by political interference. The group managed “to snatch defeat from the jaws of victory”, according to one banker, in the battle for DuPont’s nutrition and biosciences business. Instead, US group International Flavors & Fragrances grabbed the DuPont unit in a $26.2bn deal.

Deal activity in Europe remained subdued partly due to geopolitical uncertainty linked to the UK’s pending departure from the EU. The UK remained the strongest European market for deals, but activity slipped 4 per cent to $221bn. Volumes were boosted by a series of take-privates by buyout firms, as well as the London Stock Exchange Group’s $27bn deal to buy Refinitiv.

The UK election victory of Boris Johnson, the Conservative leader who has promised to “Get Brexit Done”, is expected to inject greater clarity in 2020, which could help lift overall deal activity, according to several dealmakers.

“I think the Brexit uncertainty is not completely gone, but there is less,” said Alison Harding-Jones, a vice-chairman and head of European M&A at Citigroup. “Some of that uncertainty coming into this year is less going into the next year. How long that lasts for, who knows. Is that underlying caution still there? Of course it is.”

The economic factors that have powered the multiyear run of dealmaking remained intact as cheap debt, modest economic growth and fears of disruption by tech giants led chief executives and boards to turn to asset sales and purchases.

Size and scale continued to be one of the most convenient ways for companies to retain dominance as well as keep massive tech companies such as Amazon and Google at bay.

“Scale matters as you think about the need for companies to spend on technology to transform their businesses,” said Gregg Lemkau, co-head of investment banking at Goldman Sachs. “Those [companies] with larger revenue bases have the ability to invest more in technology to grow, regardless of their underlying industry.”

Deals greater than $10bn increased 28 per cent in value compared with last year, helping to boost volumes. The spike in so-called megadeals helped make up for a significant drop in the overall number of transactions, which were down 6 per cent. Acquisitions of companies worth between $1bn and $5bn dropped 13 per cent.

Advisers added that several companies decided it was better to strike ahead of next year’s US presidential election as antitrust regulators may more closely scrutinise takeovers should a Democrat capture the White House.

“As we get into 2020 and begin considering the prospect of the US election . . . potential acquirers will recognise: the economy is pretty good, we can borrow at low rates and economic growth is moderate, so this might be the right time to get deals done, recognising that post-election the great unknown will be the regulatory environment,” said Frank Aquila, a partner at law firm Sullivan & Cromwell.

Dealmaking in the Asia-Pacific region, excluding Japan, was also down heavily, partly due to a 14 per cent drop in M&A activity involving Chinese companies. Chinese groups have been effectively banned from buying in the US as the Trump administration put up protectionist barriers.

“I think we are going to see a rise in Asian activity,” said Mr Aquila. “While we won’t see many US-China deals, we will see M&A within Asia and between Asia and other parts of the world. We will also continue to see increased Japanese outbound deals.”

Most bankers expect M&A to remain strong next year, in part due to private equity groups under pressure to put large funds to work.

“If we do have a market crack, I think the PE community will be aggressive in jumping in because they know what they want to buy and they are waiting for the right time. That time may be in 2020,” said Peter Weinberg, chief executive of Perella Weinberg Partners.