Long story short, 2018 has been a good year for M&A deals (so far).
Up to the end of September, $3.3tn worth of deals have been agreed – a 39% increase from 2017 and a record high since the financial crash. This is despite deal volume dropping in Q3. There have been a number of ‘mega-deals’ (ones worth more than $5bn) from the likes of Broadcom, Comcast and T-mobile, while activity in the energy, healthcare and technology sectors remains strong.
What’s behind this year’s increase?
Put simply: the growth and pace of new technologies. These are forcing companies to refocus and restructure to ward off competitors.
On top of this, borrowing costs are relatively low, corporate executives are taking advantage of record stock prices, and consumer confidence is rising again.
So, as we enter the final quarter of 2018, what are the key takeaways and trends from this year’s deals? We’ve pulled out three:
1. Increased Deal Complexity
Unpredictable politics, new tariffs, and increased regulations have made M&A deals more complex than ever before.
Furthermore, new cybersecurity threats are increasing the importance of a good due diligence process. A recent WSJ article suggested that: “Gaps in data protection, undiscovered breaches, regulatory violations and other holes in a company’s technology operations can threaten transactions… [and] decrease the value of a deal or leave an acquirer liable for problems after a merger.”
Demand for better due diligence is something we’ve seen at EthosData.
This year, the majority of our conversations with new clients have started with the question, “can you make our due diligence process thorough, yet simple and quick?”
The short answer is ‘yes’. You can see the long answer here (spoiler alert, it’s still ‘yes’).
2.Increased Time Pressures
M&A activity is one way for big companies to keep up with competitors and new startups. However, in today’s fast-paced economy, that activity has to take place quickly.
If it doesn’t, competitors can jump in and costs can soar.
Dealmakers are working to tight deadlines and there is a need to simplify transactions so deals can be closed faster. This is one of the reasons why new software that can speed up deal or document management (e.g. a virtual data room) has become so popular.
3.Increased Global Deals
This year, in Japan’s largest-ever outbound deal, Takeda Pharmaceutical acquired London-listed drugmaker Shire Plc for $59bn. The deal is a sign of the capital available to Japanese companies, with many predicting these funds to be used in global M&A deals in the coming months.
Meanwhile, where innovation used to be restricted to certain areas or countries (e.g. Silicon Valley), it is now spread out across the world. From Amsterdam to Africa.
The result is that companies increasingly look internationally for their M&A activity. As has been the case this year.
A word of caution:
Despite this year’s strong numbers, dealmakers are rightly concerned by the impact of ongoing trade disputes and political uncertainty on future M&A deals.
We’ll soon know the conclusion of Brexit negotiations but don’t expect this to bring certainty to European markets. Theresa May has even said the UK may extend its transition period and stay in the customs union beyond March 2019.
While confidence should remain high, as they say, what goes up must come down.
On a more positive note:
2018 has also been a good year for EthosData. For the fifth year in a row we have been awarded as Best Virtual Data Room Provider.
If you’re running a complex, time-sensitive and global M&A deal it’s time for you to invest in a good data room service. One that cuts out deal complexity and saves you time. That ‘one’ being EthosData.
Since 2007, our award-winning service has been used across thousands of M&A, IPO, asset sales, and fundraising deals by more than 100,000 users in financial organisations, law firms and advisory groups.
Want a free demo of our data room platform? Get in touch today!