We anticipate a robust year of global M&A activity in 2018, with appetite and capacity for transactions expected to increase. For the year ahead, global predicted appetite for M&A deals is projected to increase by 5 percent, while predicted capacity is also projected to go up over the same period by 17 percent, according to our M&A Predictor data.
Transactions in Q1 2018 continued the 2017 trend of deal volume and value moving in opposite directions: 2017 deal volume rose to 39,968 from 37,484 or about 7 percent while deal value declined 8 percent to US$3.479 trillion from US$3.797 trillion. However, 2018 is showing significantly more strength, in line with an improvement in predicted appetite.
Total deal value in Q1 2018 soared to just past US$1 trillion, accompanied by a 17-percent decline in volume to 8,537. As a result, average deal value in the first quarter of this year was also up significantly, rising about 42 percent to a 10-year high of US$124.6 million per deal.
M&A activity in 2017 was very similar to 2016 - down somewhat from 2015's record highs but certainly robust, with mid-market transactions continuing to be a driver of volume. Mixed global factors exerting an impact on 2017 activity included low interest rates, geopolitical issues and US tax legislation that was in the works. M&A activity started to pick up in Q3 and through Q4 to close the year strongly, with December the strongest month of the year and featuring two of the year's largest deals.
Looking forward, we continue to expect demand for good assets and companies to remain very high - whether it's large corporates with significant cash or private-equity money seeking transactions. The abundance of private-equity `dry powder' sitting idly on the sidelines cannot persist indefinitely. M&A players are actively bidding up valuations even as companies are trading at historically high multiples.
The makeup of M&A continues to evolve as ongoing demand for technology companies continues to be a key driver of deal volume. Every industry sector is on the hunt for technology firms and new capabilities, while deals values tend to be smaller. Cross-sector deals averaged US$62 million in 2018Q1 vs US$125 million for the global average.
Overall, we see volumes recovering nicely in 2018 amid strong capacity and appetite. Look for mid-market players to play an increasing role in driving volume, as will ongoing strong interest in completing cross-border deals.
Among the top 100 global deals during 2017, 54 involved the US. A significant proportion were domestic deals (44), versus the US as the cross-border buyer 10 and the US as the cross-border target (10). A large gap in the top 100 deals between the US and other countries persists and we expect that trend to be just as pronounced - or more so - in 2018.
“Deal volume in the U.S. continued on its same path as prior years. Continued consumer confidence has stabilized markets. We expect the impact of the recent tax law changes should drive M&A as more cash is repatriated to the U.S. and companies continue to focus on their growth agenda.,” says Daniel Tiemann, Global Head of Transaction Services, Deal Advisory in the US.
The number of 2017 cross-border deals increased slightly to 9,037 from 8,963 in 2016. The overall value of 2017 cross-border deals declined to US$1.04 billion from US$1.36 billion in 2016. Average deal size was also lower at US$115.9 million, versus US$152 million in 2016, but still significantly higher than the global average deal size of US$87 million. The proportion of 2017 cross-border deals - 9,037 out of 39,968 overall - has remained relatively steady over the last eight years, ranging between 22 percent and 24 percent.
This is reflected in 2017's 10-year high for cross-sector deals targeting the Technology sector, with transactions reaching a record-breaking US$144 billion - approximately US$90 billion higher than 2014. The following sectors hit a 10-year high for cross-sector deal volume into Technology: Financial Services, Consumer, Energy and Healthcare.
Industrial businesses have been the keen buyers of Technology companies, more than doubling the value of deals into the sector in 2017 (vs 2016). Just the first quarter of 2018 has seen US$8 billion in deals, higher than the entire year in 2014. In the reverse direction, Technology sector businesses continue their consumer-orientated route to market, with more than half of Technology's cross-sector deal volume aimed at the Consumer sector alone in 2017 and 2018 Q1.