The frenzied pace of US M&A in 2014 and 2015 calmed in the first half of 2016, returning the market to far more sustainable and familiar activity levels.
After two blockbuster years, the first half of 2016 has brought M&A activity back to normal levels of activity, with fewer megadeals and generally lower deal values. Although deal flow is lower than last year, H1 2016 is in line with historically strong M&A trends. The 2,291 deals recorded in the first six months are far ahead of the 1,825 deals recorded in H1 2013. Economic, regulatory and political uncertainty have all influenced this return to normality. Economically, US GDP growth is slightly below last year’s 2.4 percent increase, and there is the specter of rising interest rates on the horizon. Europe’s markets are sluggish, questions continue as to the pace of China’s economic growth and oil prices remain low. But, overall, the appetite is still in place and the broader macroeconomic backdrop is amenable for deals. Regulatory issues have arisen in connection with certain transactions. The Committee on Foreign Investment in the United States (CFIUS), which reviews transactions that could result in control of a US business by a foreign person, blocked the sale of a Dutch company’s US-based lighting division on national security grounds. And several deals are facing tough challenges under the US government on antitrust grounds. Politically, it’s been a particularly challenging year, from the ongoing drama of the US presidential elections to Brexit. The uncertainty resulting from the latter in particular will no doubt resonate for years to come. While it is difficult to speculate on actual outcomes until negotiations begin, the stakes are high for US M&A, given the UK’s position as the top target for US buyers, with 128 deals worth US$20.8 billion. Yet, despite all of this uncertainty, there are reasons for optimism. The technology, media and telecommunications (TMT) sector continues to dominate deal flow, accounting for 22 percent of all transactions, as executives and dealmakers acknowledge the transformative opportunities presented by tech. Non-tech buyers are also keeping an eye on the nascent fintech industry. And the pharma, medical and biotech sector (PMB) saw 250 deals, accounting for 11 percent of deals—including the first half’s two biggest single takeovers: Ireland-registered Shire bought Baxalta at the start of the year, and Abbot Laboratories acquired St. Jude Medical in April. Sectors like TMT will no doubt continue to offer new opportunities, even if the wider geopolitical and macroeconomic picture causes some to look very closely before they leap. More broadly, the conditions that have driven M&A around the world for the past two years have not fundamentally changed and so we expect a very busy second half.
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John Reiss
Partner, White & Case
Gregory Pryor
Partner, White & Case
Gregory Pryor
White & Case