Foreign Buyers Retreat as Uncertainty Stifles U.S. DealmakingBy and
Acquisitions of U.S. companies fall sharply amid uncertainty
Fewer big deals after several mega mergers were blocked
The number of U.S. companies targeted by overseas buyers has declined sharply in 2017, underscoring business uncertainty over the political and regulatory climate under President Donald Trump.
At the same time, appetite has waned among U.S. companies to pursue the sort of large transactions that had been a hallmark of the current mergers and acquisitions cycle.
A combination of these factors pushed the contribution of U.S. companies as targets for acquisitions to just 38 percent of global dealmaking for the first nine months of the year, the lowest level since 2010 and well below the long-term average of about 50 percent, according to data compiled by Bloomberg.
U.S. companies that are targets of non-U.S. buyers represent just 8 percent of global volume year to date, compared to about 15 percent of M&A volume in 2016, the data show. That reflects the experience this year of Michael Carr, global co-head of Goldman Sachs Group Inc.’s M&A group.
“The fact that U.S. targets have fallen to less than 10 percent of the overall global deal volume is something we have not seen for a long time,” Carr said in an interview.
“Non-U.S. acquirers have been particularly careful about pursuing U.S. targets at this juncture until they have a higher degree of certainty about their likely outcomes,” he said.
Trump’s rhetoric around dealmaking has been mixed. During his campaign, the then-Republican nominee said that AT&T Inc.’s proposed takeover of Time Warner Inc. should be blocked. But the appointment of Makan Delrahim to lead the Justice Department’s antitrust division, confirmed by the Senate last week after months of wrangling, is seen as a positive for big M&A.
Delrahim has said that vertical mergers that unite suppliers and distributors, such as the AT&T-Time Warner deal, don’t typically raise competition concerns. Another blockbuster deal -- Bayer AG’s $66 billion deal for Monsanto Co. -- is also awaiting his review.
The decline in mega deals -- transactions valued at or above $20 billion -- has deprived the M&A market of some of the glamour of previous years, and suggests companies are hesitant after a slew of large deals have been abandoned amid political and regulatory pressure in the past two years.
“U.S. companies have been careful as larger transactions can attract greater attention,” Carr said.
Two huge health insurance deals -- Anthem Inc.’s $48 billion offer for Cigna Corp. and Aetna Inc.’s bid for Humana Inc. -- were blocked by judges who said they’d harm competition. Pfizer Inc. and Allergan Plc walked away from a $160 billion merger after U.S. officials cracked down on deals designed to reap tax savings.
In the first nine months of 2017, just four deals valued at more than $20 billion have been announced, down from eight during the same period last year, the data show. Of those, the largest transaction involving a U.S. company was Rockwell Collins Inc.’s $30.2 billion sale to United Technologies Corp.
Another unusual aspect of the deal market in 2017 has been a dearth of large cross-border mergers. Of the mega deals announced so far, only one, Johnson & Johnson’s $29.7 billion takeover of Swiss pharmaceutical company Actelion Ltd., has involved an acquirer and target from different regions.
“The big deals that you have seen are of a certain kind, notably not ones that involve a lot of cross-border risk,” said Peter Tague, Citigroup Inc.’s co-head of global M&A.
“When you are talking about transactions of that scale, you are talking about transactions that are inherently fraught with levels of risk, whether political or antitrust, not present in smaller deals,” Tague said.
European dealmaking has made up for the lag in U.S. acquisitions, with deals for targets in the region accounting for more than a quarter of total volumes, a rise of 35 percent from the same period in 2016. That’s kept global deal volumes almost flat compared to 2016, at about $2.4 trillion so far. The jump in activity comes as the euro-area economy charts its recovery from years of instability, with the 19-nation region on track for its best year since at least 2010.
On top of the Actelion acquisition, French lensmaker Essilor International SA agreed to buy Luxottica Group SpA, the maker of Ray-Ban sunglasses, for about $24 billion in stock. Vantiv Inc. spent $10.4 billion on London-based e-commerce payments company Worldpay Group Plc.
“Continental Europe has had a very robust year in terms of M&A on the back of more political stability and economic growth optimism,” Dietrich Becker, a partner at Perella Weinberg Partners in London, said in an interview. “I see no reason why this should not continue into the fourth quarter and next year.”
The shifting dynamics of the global deal market have created opportunities for private equity investors, with the value of acquisitions involving financial sponsors at $672 billion for the nine months through September, up 25 percent from the same period in 2016.
“Financial sponsors, which are not subject to the same atmospherics as corporates, have come back strongly,” said Goldman’s Carr. Still, the same shareholder desire for growth that has underpinned much of the US corporate dealmaking since 2013 remains strong, and is likely to drive a rebound as companies adjust to the political and regulatory landscape, he said.