A decade after the financial crisis scotched M&A activity along with much of the economy, dealmaking could be poised to reach unprecedented levels as it wraps up the fifth year of a rebound, despite an increasingly fraught backdrop.
Global transactions reached $3 trillion even before the start of the fourth quarter, topping every year since the millennium began except 2007, according to data compiled by Bloomberg. In each of the past three years, the final quarter has been the most active of all, meaning 2007’s $4.1 trillion milestone may be left behind by year’s end.
To mark 10 years since the collapse of Lehman Brothers heralded the unofficial start of the crisis, Bloomberg Deals looked back over a decade of data to see how dealmaking has changed. Where’s the money flowing, will big leveraged buyouts ever come back and do escalating trade tensions mean we’ve already passed peak China? Here’s what we found.
Five Years
While dealmaking took a hit for several years after the crisis, by 2013 companies started to open their pocketbooks again -- and they haven’t looked back. So far, this year is on pace to beat the post-crisis highs of 2015, with megadeals such as Takeda Pharmaceutical Co.’s $62 billion acquisition of drugmaker Shire Plc and Cigna Corp.’s $54 billion purchase of Express Scripts Holding Co. leading the way.
“In the aftermath of 2008 it took a good five years for people to start thinking about M&A again,” said Michael Carr, global co-head of mergers and acquisitions at Goldman Sachs Group Inc. “It was 2013 when we entered a new era that started the current environment.”
“Five years later, we are now in a place where shareholders are demanding growth and we’re seeing both horizontal and vertical transactions,” Carr said. “All of which are signs of a strong market.”
Dry Powder
The bounce back has hasn’t been across the board though, with leveraged buyouts still well below their pre-crisis peak. While private equity firms are sitting on more than $1 trillion of dry powder, valuations of potential targets are high and firms are facing increased competition from strategic acquirers for the best assets.
The number of M&A transactions with an enterprise valuation of seven times earnings before interest, taxes, depreciation and amortization or more has rebounded since the financial crunch, reaching 432 last year -- about 74 percent of the deals for which the information was available -- according to the data compiled by Bloomberg. The low point was 2012, when about 60 percent of the deals were struck at a multiple of less than seven times ebitda.
Private equity firms’ repertoire has also dramatically broadened in the last decade, with buyout shops now investing in everything from growth-stage companies and real estate to each other.
America First
Throughout the slump and the rebound, the U.S. has held its place as ground zero for M&A. Deals to acquire U.S.-based companies account for $1.3 trillion of this year’s completed and pending transactions, out of the almost $2.5 trillion global total, the data show. Four of the top five deals announced in 2018 are for U.S. targets.