After a disappointing H1 2016 for merger and acquisition (M&A) deal announcements in North America (NA), the region rallied in H2 2016 and has shown even stronger growth in the first six months of 2017, lifting worldwide M&A projections for the full year 2017 (FY 2017).
The numbers speak for themselves. According to data from Thomson Reuters and Intralinks’ analysis, the number of announced M&A deals in H1 2016 fell by 1% year-over-year (YOY), then rose by 14% YOY in H2 2016. During H1 2017, announced M&A deal volumes continued to grow by an incredible 28% YOY, making NA the best-performing region, worldwide.
However, the euphoric increase in NA M&A announcements may be short-lived. The spike in activity was partly predicated on President Trump’s campaign promises of a fiscal stimulus package and massive infrastructure investments that would boost the economy. Failure by the Trump administration and Republicans in Congress to advance healthcare reform, tax reform and infrastructure plans led the International Monetary Fund in July to downgrade its predictions for US economic growth in 2017 and 2018 to 2.1% from a previous 2.3% in 2017 and 2.5% in 2018.
Also, according to the latest Intralinks Deal Flow Predictor report , Q2 2017 early-stage M&A activity fell by 3% YOY in NA. Based on this data, our independently verified predictive model forecasts that the number of announced M&A deals in NA will increase by around 10% YOY in FY 2017. Over the next six months, the strongest growth in NA deal announcements is predicted to come from the healthcare, materials and consumer & retail sectors.
The US is unique among the major advanced economies in having embarked on an interest rate tightening cycle in December 2015. Despite limited evidence of inflationary pressures, the US Federal Reserve has raised interest rates four times in the past 20 months. So, although we saw a significant increase in the number of announced M&A deals during H1 2017, the drop in early-stage deal activity in Q2 2017 could point to growing concerns by dealmakers over tightening US monetary policy.
Ten years after the start of the global financial crisis, worldwide M&A activity continues to set new highs, supported by buoyant asset markets, a pickup in global economic growth, subdued inflation in advanced and emerging economies and historically low-interest rates that make debt financing for acquisitions cheap and readily available.
While macroeconomic and monetary conditions are fueling M&A activity, political risks remain. An escalation of the conflict between the US and North Korea, restrictions on global trade and cross-border economic integration (including President Trump’s oft repeated threats to pull the US out of NAFTA), or increases in nationalism or protectionism, could negatively affect dealmaking sentiment in NA.
NA dealmakers will therefore be hoping that President Trump’s rhetoric against free trade, globalization and cross-border capital flows will be tempered by the realities of governing, the influence of pragmatists within the US administration and the need to work together with the US Congress and Republican legislators – most of whom are pro- free trade.
To get more regional and sector insights, and to know the future of global M&A six months ahead of anybody else, download your copy of the Intralinks Deal Flow Predictor report here.