A record-setting first quarter of 2018 has laid the foundation for another blockbuster year of dealmaking, with US M&A in full swing and disruptive market entrants continuing to fuel activity.
Global M&A in the first quarter of 2018 saw a total of 3,776 deals worth US$890.7 billion, marking an 18% value increase compared to Q1 2017, and the highest deal value achieved in a first quarter on record.
US leads the charge
The US was the nexus of global M&A activity in the first quarter, as pro-business reforms and benign financing conditions created a near-perfect environment for dealmaking.
US firms attracted five out of the top ten deals of the first quarter, including Brookfield Property Partners’ planned US$26.6 billion acquisition of General Growth Properties and Keurig Green Mountain’s US$23.1 billion agreement to acquire Dr Pepper.
Deals targeting the US accounted for almost half (44%) of global M&A value. A total of 1,148 announced deals worth US$394 billion marked the strongest start to the year on record.
Pro-business government reforms appear to have been instrumental in driving this boom. The Trump administration’s cut of corporate tax to a 21% flat and effective rate, delivered at the end of 2017, seems to have had a positive effect on dealmaking by boosting companies’ balance sheets and freeing up cash for M&A. And recently passed tariffs on steel (25%) and aluminium (10%) could fuel inbound acquisitions from buyers in countries not subject to exemptions.
Amazon’s move into the pharmaceutical industry along with the ongoing challenge of rising healthcare costs have been cited as motivations behind deal activity. In January, Amazon teamed up with JP Morgan & Chase and Berkshire Hathaway in a bid to cut healthcare costs for their US employees (an estimated 1.1 million). Their presence will be sure to shake up the industry as the year progresses.
European firms look outwards
Western European dealmakers are increasingly looking outside the continent to secure deals. Renewed economic growth across the Eurozone in 2017 appears to have translated into increased boardroom confidence, with 102 deals worth US$59.9 billion representing the second-strongest first quarter on record, following only 2017’s numbers.
French firms have led the pack in terms of outbound dealmaking, securing two blockbuster deals in the first quarter: Sanofi’s US$11.1 billion plan to acquire US-biotech firm Bioverativ, and AXA’s US$14.8 billion planned purchase of insurance provider XL Group. The transactions reflect French President Emmanuel Macron’s vision of creating “European champions” able to build scale and compete on the global stage. This will prove an area to watch in 2018.