1. US backlash against Chinese deals intensifies
In September, President Trump blocked a US$1.2 billion takeover bid for Lattice Semiconductor Corp. by China-backed, US-based Canyon Bridge Capital Partners. The move reflects the current Administration’s perspective on cross-border transactions involving Chinese bidders seeking to invest in sectors that are deemed to be sensitive from a national security perspective.
Pending deals such as China Oceanwide’s bid for Genworth and Ant Financial’s purchase of Moneygram International are expected to undergo heavy scrutiny as they continue to be vetted by the Administration.
This heightened protectionism is reflected in Q3 M&A figures, with 11 announced Chinese deals worth US$1.66 billion targeting the US marking the lowest quarterly value since Q1 2015.
2. Bumper energy deals signal renewed dealmaking confidence
The rallying of oil prices to close to US$60 a barrel has heralded a renewed confidence in energy dealmaking. A string of summer deals highlights this trend, including the US$5.6 billion bid for Calpine by a consortium led by Energy Capital Partners; Sempra’s US$9.45 billion agreement to acquire Energy Futures Holdings, 80 percent owner of Oncor Electric (taking into account the 20 percent of Oncor that Energy Futures doesn't own and Oncor’s debt, the actual transaction price is more than US$18 billion); and Total’s US$7.45 billion plan to take over Denmark's Maersk Oil.
As a result, energy, mining & utilities was the most targeted sector by value during Q3. There were 299 deals worth US$131.85 billion announced, up 45 percent by value compared to the previous quarter.
3. Aerospace deal values soar
The aerospace industry is ripe for consolidation as firms look to drive down operating costs and deliver competitive prices. The highest valued deal of the quarter globally targeted the industry: United Technologies’ US$30 billion agreement to acquire aircraft avionics maker Rockwell Collins. The deal amounted to a large proportion of deal value targeting the industrials and chemicals sector, which posted 718 deals worth US$101.6 billion and was the most targeted sector by volume during Q3.
The aerospace subsector experienced a wave of activity during the third quarter. Airbus’ maintenance repair and overhaul (MRO) subsidiary Vector Aerospace agreed to be acquired by Veritas Capital; Platinum Equity announced plans to buy Pattonair, a supplier of components to the aerospace and defence industry, for US$392 million; and GKN Aerospace announced plans to sell its Bandy Machining business to JW Hill Capital for an undisclosed sum.
4. London still draws in big ticket deals
M&A activity targeting the UK continues to defy Brexit uncertainty. International dealmakers are not letting ongoing negotiations deter them from seizing prize assets. In fact, the UK attracted the highest valued European deal of Q3: the US$12 billion planned takeover of payment services firm Worldpay by US rival Vantiv. Largely as a result of the Worldpay deal, US M&A investment into the UK in reached its highest Q3 value on record.
While a weakened sterling has been a key motivator for deals, London’s status as a global fintech hub is also proving a major draw for international dealmakers. Vantiv would be keen to gain a slice in the city’s favorable fintech environment and capitalize on its first-mover advantage in the sector to accelerate growth and build scale.
5. US firms seek growth within their borders
Despite uncertainty surrounding the future of President Trump’s administration, favorable financing conditions have created fertile ground for M&A between US firms.
These conditions are pushing firms to conduct bulkier deals, with five out of the top ten deals of the quarter taking place between US firms. Domestic dealmaking within the US has gradually increased throughout the year to reach US$237.15 billion in Q3, a 10 percent uptick in value compared to Q3 2016. With President Trump’s campaign focused on boosting domestic capability in infrastructure, energy and defense, US dealmaking looks set to climb even further.