Paul Weiss Offers M&A at a Glance for December 2018

M&A activity in December 2018 declined across most measures. While M&A activity reached 12-month lows both globally and in the U.S., the declines in the U.S. were significantly more pronounced. Deal volume by dollar value[1] decreased, by 55.2% to $65.36 billion in the U.S., and by 17.4% to $216.72 billion globally. In the U.S. the average value of announced public mergers declined to a 12-month low of $1.35 billion. Figure 4. The number of deals also decreased, by 17.3% to 430 in the U.S., and by 12.6% to 2,250 globally, hitting the lowest levels for number of deals both in the U.S. and globally in the history of this publication (below the previous record lows set in November).

Strategic vs. Sponsor Activity

Unlike November, the strategic M&A market – while still relatively weak – performed better than the sponsor market in December 2018. The number of strategic deals decreased in December 2018 by 7.5% to 347 in the U.S. and by 11.0% to 2,015 globally. Additionally, strategic volume by dollar value decreased by 40.8% to $49.51 billion in the U.S., but increased slightly by 1.2% to $173.82 billion globally. Figure 1 and Annex Figures 1A4A. The number of sponsor-related deals decreased in the U.S. by 42.8% to 83 and globally by 24.2% to 235, and sponsor-related deal volume as measured by dollar value decreased in the U.S. by 74.6% to a 12-month low of $15.85 billion and globally by 52.7% to a 12-month low of $42.91 billion. Figure 1 and Annex Figures 1A4A.  Such declines in sponsor-related activity coincide with and may partially be explained by the recent weakness in the acquisition financing markets (particularly the high-yield markets) in December,[2] and general weakness in M&A dealmaking with overall equity market instability.

Crossborder Activity

The number of crossborder deals decreased globally by 15.8% to 516, and crossborder deal volume by dollar value decreased by 23.8% to $72.98 billion.

In the U.S., the number of U.S. inbound crossborder deals decreased in December 2018 by 6.6% to 85, and U.S. outbound transactions decreased by 26.3% to a 12-month low of 87. U.S. inbound activity as measured by dollar value decreased by 71.8% to $14.27 billion, and U.S. outbound volume by dollar value decreased by 10.1% to $9.13 billion. Figure 1 and Annex Figures 5A—7A.

Japan was the leading country for U.S. inbound activity by number of deals in the month of December (18), and Canada retained its lead for U.S. inbound activity by number of deals over the last 12-month period (340). The U.K. was the leading country for U.S. inbound activity as measured by total dollar value in December ($6.15 billion), and Canada retained its lead for U.S. inbound activity as measured by total dollar value over the last 12-month period ($81.76 billion). In both December and over the last 12-month period, the U.K. was again the leading destination country for U.S. outbound transactions by number of deals (23 and 309, respectively). France was the leading destination country for U.S. outbound activity by dollar value in December ($3.68 billion), driven primarily by Merck & Co.’s announced acquisition of Antelliq Holdings France SAS.  The U.K, despite the ongoing uncertainty surrounding Brexit, retained its lead for U.S. outbound activity by dollar value over the last 12-month period ($89.74 billion). Figure 3.

U.S. Deals by Industry

Computers & Electronics remained the most active target industry by number of deals in December (112) and over the last 12 months (2,259). Consumer Products was the most active target industry by dollar value in December ($12.83 billion), driven primarily by Altria Group Inc.’s acquisition of a minority stake in JUUL Labs Inc.  Computers & Electronics was the most active target industry by dollar value over the last 12 months ($325.11 billion). Figure 2.

U.S. Public Mergers

As for U.S. public merger deal terms in December 2018, average target break fees and average reverse break fees were both below their 12-month levels. Average target break fees were 3.3% (compared to a 12-month average of 3.7%), and average reverse break fees were 4.1% (compared to a 12-month average of 5.7%). Figures 6 and 7.

All Figures referenced above are available here.

ENDNOTES

[1]     Each metric in this publication that references deal volume by dollar value is calculated from the subset of the total number of deals that includes a disclosed deal value.

[2]     See e.g., Daniel Kruger and Sam Goldfarb, Junk-Bond Sale Ends 40-Day Market Drought, The Wall Street Journal (January 10, 2019), https://www.wsj.com/articles/a-junk-bond-drought-is-making-investors-nervous-11547116200.

This post comes to us from Paul, Weiss, Rifkind, Wharton & Garrison LLP. It is based on the firm’s memorandum, “M&A at a Glance–January 2019,”dated January 16, 2019, and available here.