Dealmakers' ability to adapt to market changes and tackle external challenges will prove crucial in getting deals done
The first six months of 2017 have proven extremely solid, with a string of consumer megadeals and tech convergence plays boosting the US market. On the other hand, a drop in investment from China and uncertainty around the Trump administration's ability to implement its pro-business agenda will pose challenges to dealmaking. Despite that uncertainty, the H1 2017 results say deals based on sound strategic fundamentals will continue to get done.
The following factors will likely characterize US M&A for the rest of this year, and into 2018:
Tech crossing boundaries
Technology has transformed the way businesses operate and engage with their customers, in turn blurring distinctions between sectors. As companies move to keep pace with technological change, creative deals struck between "tech" and "non-tech" companies will become commonplace.
And convergence will begin to impact sectors that have previously been slow to change. After autotech, fintech and healthtech, the next section of the market to be disrupted could well be professional services, as blockchain and AI move from the fringes to the mainstream.
Treat Trump as a bonus
President Trump's plans to spend on infrastructure, cut taxes and regulation, and reduce the taxation of cash repatriated to the US are expected to provide M&A activity with a material boost. Difficulties with passing certain reforms through Congress, however, have cast doubts over the administration's ability to implement its agenda.
In time, Trump's reforms may well come into force and benefit dealmaking, but in order to succeed until then, transactions will need to have deal rationales that stand up irrespective of any potential upsides from Trump's legislation changes.
Inbound M&A continues
The Trump administration's "America First" focus and a sharp fall in inbound M&A from China in H1 2017 have raised concerns that overall inbound M&A activity will shrink in the years ahead. But overseas interest in US deals has held up well against these challenges, and is likely to remain an attractive jurisdiction for foreign buyers.
The consumer sector, particularly online and offline retail, could continue to be a popular choice for strategics and private equity alike. Meanwhile, as many large corporations continue cutting back to their core competencies, divestments are likely to pick up and drive the market forward.
Tackling the unknown
As the threat of cybercrime evolves and becomes more complex, the c-suite will be forced to adopt a more sophisticated and tailored approach during the due diligence process.
That approach must look beyond contract protections to a full review of a target's technology infrastructure, how the target shares data with third parties and the risk of exposure to a cyberattack through the target. This may well extend the deal process and, in certain extreme cases, may cause some deals to fail. However, the cyber stakes are now so high, companies cannot afford to be anything less than 100 percent thorough.
Despite uncertainties and challenges, there remains plenty of reason for dealmakers to be optimistic in 2017 and beyond. President Trump's proposed plans may soon come into fruition and give a boost to US dealmaking. Strong fundamentals such as an abundance of cash, a strong stock market and stable economic growth paint a positive picture for an active second half of 2017.