United States: 2017 Annual M&A Review

Last Updated: January 26 2018
Article by Lyle Ganske

Early expectations for an outstanding year for M&A activity in 2017 (based on the very promising conditions in place at the end of 2016) were fulfilled in part, but the overall theme for 2017 could be said to be "deferred potential." In short, 2017 was a strong year for dealmakers but not a great one.

Globally, the M&A market in 2017 saw an uptick in the number of transactions, but it held steady in terms of deal value. Worldwide, 49,448 deals were announced at an aggregate value of $3.6 trillion, with 2016 at 48,250 deals and $3.6 trillion. In the United States, the number of transactions increased—from 11,504 to 13,069 — but the aggregate value of those transactions declined—from $1.7 trillion to $1.4 trillion. This is consistent with what we saw in many boardrooms throughout the year— companies continuing to do deals, but on a smaller scale, with fewer large-scale transformative acquisitions being inked. Europe saw a decline in the number of deals, but aggregate value increased, while Asia saw a decrease in value and a slight increase in deal count. Overall, the picture is one of incremental acquisition, with transformative transactions (especially those involving the United States) potentially deferred into 2018 in the face of considerable tax, antitrust, CFIUS, trade, Brexit, Chinese capital control, and other regulatory and policy uncertainty.

Some sectors in 2017 showed continued strength. As highlighted in our review, real estate was an area of significant activity, with dealmaking in the sector reaching an all-time annual record of approximately $530 billion. Technology acquisition was a primary driver for deals across sectors (including "traditional" industrial companies seeking to unlock the potential of new business methods and capabilities), although "pure play" technology deals were few and far between relative to prior years. Health services, pharma/ biotech, and energy continued to be very active in M&A in 2017.

It may be that 2018 is the year that unlocks 2017's underachieved potential. A recent Deloitte survey found that 68 percent of corporate executive respondents and 76 percent of private equity sponsor respondents anticipated increased deal flow in 2018, with sizable majorities of both also expecting deal size to increase. A number of factors undoubtedly contribute to this outlook, including cheap capital relative to historical levels, buoyant stock markets, significant corporate cash stockpiles (and the anticipated repatriation to the United States of a portion of more than $2.5 trillion in overseas profits), an agreed pathway to Brexit, and resolution of U.S. tax policy. Continuing pressure on companies to achieve growth— driven by globalization and technology— and on financial sponsors to achieve returns is also driving expectations for a strong year. Acquirors with an increased confidence in their financial and regulatory environment should be more willing to explore the sort of transformative acquisition that was not prevalent in 2017, while the conditions for mid-market deals remain excellent. Overall, we see considerable cause for optimism for 2018's M&A market.

Nevertheless, there are substantial risks going into 2018. Economic uncertainty in South America, the potential for disruptions in bond markets due to rising interest rates, stock market valuations that may return to historic norms, and geopolitical conflicts such as North Korea are among the risks that could disrupt anticipated growth.

As we have for 18 years running, Jones Day ranked #1 globally in 2017 in the Thomson Reuters and Bloomberg M&A tables. We are grateful for the opportunity to have advised our clients on more than 540 transactions in 2017, including 42 transactions involving $1 billion or more. As you will see in the examples contained in the following pages, those transactions spanned the globe, as our clients engaged us to handle complex work in every significant industry sector. As always, we seek to deliver to our clients top-quality legal advice in a timely, efficient, and seamless manner. Our Firm's commitment to client service is reflected in industry recognition, but more importantly in the continued willingness of our clients to entrust us with their most critical and time-sensitive matters. Thank you for that trust and confidence in the Firm.

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