Cross-Border M&A: 2018 Trends & 2019 Outlook

New York, NY
February 20, 2019

Throughout 2018, M&A was driven by a multitude of factors as significant amounts of capital became available in the global financial system, making it a record year for private equity (PE) firms in the U.S. and around the globe.

Cross-border M&A, specifically, was both interesting and robust last year, demonstrating just how intertwined the deal making space is with geo-political events and economic highs & lows. From a domestic standpoint, numerous factors made M&A an attractive option in 2018, though recent events seem to have slowed the positive trend. The U.S. Government shutdown in late 2018/early 2019 is a prime example; this event was on everyone’s radar as a destabilizing threat to the economy – and the numbers proved it.

How did factors, such as the above, impact M&A? What does 2019 have in store for the PE deal landscape?

With our Alvarez & Marsal Global Transaction Advisory Group situated throughout several global regions, I share below my perspective on the critical factors that have shaped the private equity sector in 2018 and what we can expect in the 2019 ahead:

Global M&A Factors

    1. Significant Amount of Dry Powder
    There was, and still is, a significant amount of capital waiting to be deployed in the global financial system. This was due to strong corporate earnings generating cash – especially from U.S. tax reform – and PE firms raising a record amount of capital, with sovereign wealth funds & family offices seeking to directly invest.

    For firms sitting on $1T+ of dry powder, extreme pressure is being felt to deploy, as well as exit businesses in order to drive returns to investors – who, in turn, would reinvest right back into the PE asset class.

    Beyond the record amount of capital raised in 2018, portions of that capital have been moved into credit funds being used as alternative financing sources, creating competition for financial deals. This has resulted in more favorable terms albeit with slightly more risk.

    2. Low Oil Prices
    When the energy sector experienced a significant drop in oil prices and as prices stayed low, some companies experienced a decline in business levels. On the other hand, some sectors benefited from lower fuel prices and manufacturing costs, driving change across different industries.
    3. Technological Disruption
    Significant technological developments are causing businesses, such as those in the retail sector, to buy in order to remain competitive – or sell, if they are not the market leader nor willing to take the technology risk.
    4. Need for Diversification
    The disruption in global public equity markets that began towards the end of 2018 is creating both risks and opportunities. Worldwide, businesses are seeking to diversify in order to mitigate market & political risks, among others.
    5. Strong U.S. Dollar
    Against foreign currencies, the strength of the US dollar drove cross border deal flow, especially in emerging markets.

Domestic U.S. M&A Factors

    1. Low Interest Rates
    With historically low interest rates & a low inflationary environment last year, investors viewed deals as more attractive, despite some being wary of an overheated economy.
    2. Strong Public Equity Market
    The strength of the public equity markets in early 2018 gave executives the confidence to transact, as well as provided stock to use as a currency.
    3. Business Competition
    Between competition and a too-slow organic pursuit for growth & earnings, businesses turned to inorganic growth via M&A. This drove cost savings and synergies, placing organizations in a better position against competitors.

What trends do you foresee impacting M&A in 2019?

    1. Rising interest rates & leverage loan activity
    2. Ongoing global trade tensions, particularly between the U.S. & China
    3. Strength of the U.S. dollar versus foreign currencies
    4. Geo-political risks & rise of nationalism globally – China, North Korea, Middle East, etc.
    5. Potential gridlock resulting from a divided U.S. Congress
    6. Overall global regulatory environment and rise rising nationalism

Where do opportunities lie for your clients in 2019?
M&A opportunities present themselves across many different regions, including emerging markets such as Latin America, India, and Europe post-Brexit. We’re currently seeing clients move into this space.

As the markets continue to pull back from global synchronous growth, I believe the volatility will cause valuations & pricing to come down. This will then drive capital into the market – capital that has been sitting on the sidelines seeking alpha-business models undergoing disruption via technology or other competitive means.

From an industry perspective, healthcare, technology, and business services continue to be attractive areas for investment activity and rapid growth, due to an ever-changing market environment.

How can Alvarez & Marsal Assist you in the current global M&A landscape?

The world is ever-changing as countries become increasingly inter-connected. It is our Alvarez & Marsal Global Transaction Advisory Group’s unique ability to rapidly deploy our integrated services on a global basis that remains to be a key differentiator for our firm, and an advantageous opportunity for our clients to navigate such an environment. Our global reach and local approach are the future of professional services and how we help you to achieve maximum deal value in every cross-border transaction. A&M is M&A.

For more information about our cross-border M&A services: