The deal mania that has animated corporate America for the past few years is poised for a small deceleration, but it still will be pretty darn strong, according to consulting firm Deloitte.
In its annual poll of corporate executives and private equity firms, 63% of respondents said that mergers and acquisitions activity will increase somewhat, or significantly, in 2020, as opposed to 79% a year ago. Among corporations, divestitures remain popular, thus providing good deal fodder for acquisitive companies and PE outfits. Some 75% of executives expect to pursue them in 2020, the second highest level in four years.
Although the economic outlook appears better than it did from last year’s vantage point, poll respondents factored in the possibility of a slowing economy’s effect on M&A. Their answer: It would lead to increased deal activity, presumably because assets would be cheaper. Corporate America is sitting on an enormous cash pile.
Despite all the optimism, the survey found that 46% admitted that less than half of their deals garnered the return they expected. What’s more, dealmakers are leaning toward domestic transactions, due to political and trade instability. While the US and China have forged a truce in their trade war, other flashpoints remain, such as President Donald Trump’s talk about ratcheting up tariff pressure on European goods.
Last year was the world’s fourth biggest on record for M&A, with global deal value hitting $3.8 trillion, according to Dealogic. Companies generated 12 deals worth more than $25 billion. The largest: United Technologies’ combining with defense contractor Raytheon, for $86 billion. Amid all the activity, Europe was an anomalous slow-go zone, with deal value down almost a third amid ebbing economic activity and unease about Britain’s exit from the European Union.
Among PE firms, Apollo Global Management saw its net income in last year’s fourth quarter almost double from the year-before period, hitting $188 million. Of course, the final quarter of 2018 was a particularly bad one for the stock market.