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According to a recent report by JP Morgan, M&A strategies are likely to become more aggressive in 2020 as a result of dampening in uncertainty. Global Head of M&A, Hernan Cristerna stated “We expect 2020 will be an active market, which will not vary dramatically from the volumes we’ve seen in 2019. It also should be a disciplined market with corporations looking at their core competencies, prioritizing strategic deals, and scrutinizing the use of their balance sheet.”
A review of 2019
The report outlines that in 2019, 47 megadeals were announced globally—36 of them in North America—the second highest megadeal count in North America on record and up 38% versus 2018. 12 (60%) of the top 20 transactions that were announced globally in 2019 were related to divestitures, spinoffs, splitoffs, or corporate clarity.
However, geopolitical uncertainty affected M&A activity. Crossborder volume was down 13% year over year and represented only 26% of M&A activity, compared with 30% the previous year.
The regulatory environment was challenging in 2019. Increased antitrust scrutiny across Europe drove the collapse of two significant mergers – J Sainsbury’s acquisition of Asda Group for $10 billion and Alstom’s $8.7 billion merger with Siemens Mobility Business.
An increased number of merger of equals (MOE) discussions occurred in 2019 as companies consolidated similar businesses rather than expand into new business segments. MOE volume reached record levels in 2019 and increased 68% globally.
Looking ahead to 2020
While the report estimates that strategic dialogue will remain high in 2020, it states that Europe is at risk of losing its competitive advantage after a strong year of transformational deals in the U.S.
Shareholder activism will continue to play a key role in global markets, along with the importance of environmental, social, and governance (ESG) issues for both activists and institutional shareholders alike.
While consumer confidence remains at elevated levels, CEO confidence levels have fallen significantly since 2017 which may further drive a preference for fortifying acquisitions (e.g., same sector, scale building) over higher-upside, growth-driven acquisitions.
The report outlines that it expects M&A activity to be driven by companies looking to strengthen their business to better withstand periods of uncertainty. Priority M&A deals will likely be the ones where cash flows are enhanced, earnings volatility is dampened and balance sheet strength is maintained or improved.
Read the JP Morgan 2020 Global M&A Outlook report here.
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