M&A activity accelerated as the year progressed, with dealmakers shaking off market uncertainty to secure groundbreaking deals

In the first half of 2018, global M&A soared to levels not seen since 2007. The second quarter built on a strong foundation secured in Q1, increasing by 12.4% to reach US$1.01 trillion—the first time quarterly deal value has topped the US$1 trillion mark since Q4 2016 (US$1.02 trillion).

Combined, a total of 8,557 deals worth US$1.9 trillion announced in the first half of the year stands just 9% behind 2007’s pre-crisis high in deal value, suggesting an annual record may be in sight.

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Megadeals dominate the market

Despite the steady increase in value, volume shrunk by 11% year-on-year, reflecting booming activity in the top end of the market. The second quarter saw six deals valued at over US$20 billion, including Takeda’s US$79.7 billion takeover of Shire—the highest-valued deal of the year so far—T-Mobile USA’s US$58.9 billion purchase of Sprint, and Comcast’s US$40.7 billion acquisition of Sky.

Uncertain times

In an M&A market characterized by escalating tensions surrounding global trade, rising interest rates and volatile stock markets, dealmakers appear to be favoring deals made on home turf. Four of the top five deals of the year have been domestic.

The Trump administration’s decision to levy 10% tariffs on aluminium and 25% tariffs on steel have raised the risk of a trade war between the US and the world’s other large economies. Protectionist policies and curbs on free trade have had a knock-on effect on stock markets, which have been particularly volatile in the first half of 2018.

Looking inward

This trend is particularly noticeable in the US, where domestic activity reached record highs while inbound activity slowed. Healthy balance sheets, strengthened by recent tax reforms, have served to boost activity between US-based firms, hitting an all-time high value of US$685.2 billion in the first half of 2018. Meanwhile, inbound activity into the US has fallen by almost half (45%) to US$109.6 billion in the first half of the year, with Chinese dealmakers noticeably absent from major transactions.

The first half of the year has revealed how M&A’s strategic value endures in uncertain times. The uptick in global deal value affirms that large, cash-rich corporations with clear strategic rationales for M&A have shrugged off market volatility. As firm strategic rationales continue to underpin deals, 2018 holds the potential to be another record-breaking year.