Q2 global M&A value leaps, volume drops, as US domestic deals drive the market

M&A value rises for the second quarter in a row as dealmakers shrug off global uncertainties such as Brexit and trade tensions—and get back to the negotiating table

Total global M&A deal value hit US$909.1 billion in Q2, an 11% climb compared to Q1, even though volume fell by 12% over the same period. Despite a volatile economic and political climate, big deals still abound, mostly in the US.

Domestic dealmaking in the US is a continuing bright spot in the M&A landscape. Value rose 14% quarter on quarter, and 13% year on year to US$413.6 billion—the second-highest quarterly value on Mergermarket record. Global tensions, however, between the US and its major trading partners have dampened appetite for cross-border deals. Indeed, eight of the top ten deals of the quarter were domestic US transactions.

Shale pushes EMU values up

The defense sector registered its highest value quarter on record in Q2—US$89.9 billion, which was triple the total value in all of 2018, the second highest year on record. But this was almost entirely due to the planned US$88.9 billion merger between Raytheon and United Technologies Corp (UTC), which would create the US’s second-largest aerospace and defense company by market cap, after Boeing.

Energy, mining and utilities (EMU) was the only other sector to see a year-on-year increase in deal value. There were 268 deals in the EMU sector in Q2, worth US$162.4 billion, a 12% rise in value on the same period last year.

The quarter’s deals included the largest acquisition of a US-based oil and gas company since the US$73.7 billion merger between Exxon and Mobil in 1997. Occidental Petroleum’s winning bid of US$54.4 billion for Anadarko Petroleum followed a dramatic bidding war that saw Occidental face off against Chevron. Both bidders were attracted to Anadarko for its shale assets in the Permian Basin, in the American southwest.

The Permian Basin is now the world’s most productive oilfield, overtaking Ghawar in Saudi Arabia this year. Shale production in the region has allowed the US to more than double its oil production in a decade and pushed the country to become the world’s largest producer of crude oil, surpassing Saudi Arabia and Russia last year, according to Energy Information Administration estimates.

The bidding war for Anadarko could signal the start of a wave of consolidation. That’s because the Permian Basin, aside from a few large operators like Chevron, has been primarily developed by small independent operators. These smaller firms could now be ripe for picking by the global oil majors.

2019—slower but still solid

The pharma, medical and biotech (PMB) sector saw a decline in activity globally, falling 10% in value to US$142.8 billion and 33% in volume in Q2 compared to the same period in 2018. The top end of the market, however, remained active.

In April, the IMF revised its global growth projection down from the 3.5% it had predicted in January to 3.3%, citing trade tensions between the US and China, the normalization of monetary policies, and macroeconomic stress in Argentina and Turkey. A slowdown in growth could dampen M&A appetite, and after several years that have seen unprecedented levels of activity, the market is due for a correction.

While we are unlikely to see the heights of the last few years of dealmaking, 2019 is still on course to be a strong year. The US remains a very attractive economic destination for acquirers, and both corporations and financial buyers have vast levels of capital and easy access to financing. Despite trade tensions and a slowdown in the global economy, the strategic rationale remains for plenty of sectors and companies to strike deals.

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