Opportunities for outbound U.S. M&A to rebound in 2020

  • Outbound activity in the first three quarters of 2019 fell by 37% by value and 8% by volume compared to 2018

  • 2020 should present opportunities for U.S. outbound activity to increase, facilitated by moderation in valuations and enhanced commercial certainty

U.S. companies looking to acquire foreign assets faced a challenging market in 2019, with the value of outbound U.S. M&A falling by a third over the first nine months of 2019 compared to the same period last year.

2019 has been characterized by economic and regulatory uncertainty, serving to stymie outbound U.S. activity. Ongoing concerns about Brexit in Europe, presidential impeachment proceedings in the United States, a potential recession in Germany, and a protracted trade war between the United States and China have prompted U.S. corporate boards to pause before acquiring international targets.

The travails in Europe, traditionally a desirable market for U.S. companies seeking to acquire assets overseas, have deterred dealmakers, while Asia’s two largest economies, China and Japan, have been less welcoming to U.S. buyers than in preceding years.

Even so, as we near the end of 2019, there are a number of signs that U.S.-based companies are readying themselves to increase activity on the outbound M&A table.

Moderation in asset prices

From a buyer’s perspective, valuation levels for targets that have been at historically high levels appear to be dropping, allowing U.S. companies previously deterred by steep asset prices to return to the table at more moderate pricing levels.

Divesting non-core assets

From a seller’s perspective, slowing economies will inevitably put pressure on businesses to perform, foreshadowing a likely increase in European companies looking to divest and spin off underperforming assets within their business portfolios.   

Continued availability of cash

Private equity firms remain well-positioned for dealmaking with record levels of deployable capital and continued access to debt financing on favorable terms.  Strategic buyers also have maintained healthy balance sheets with capital available for non-organic growth opportunities.

The continuing imperative of Technology M&A across all sectors

While certain sectors may suffer from ebbs and flows in confidence levels and associated dealmaking, the continuing imperative for all types of businesses to keep pace with rapid changes in technologies and address competition from start-ups should mean that technology-driven M&A will continue to be viewed as a preferred growth strategy. 

Megadeals vs. bolt-ons

While it remains to be seen whether megadeals will play a major part of the 2020 M&A landscape, with tight labor markets and the need to adapt to the world’s evolving digital economy, bolt-on acquisitions that bring expanded product and service offerings and digital capabilities should emerge as a key focus of activity.

Increasing commercial clarity across major markets

There are encouraging signs, including the anticipated signing this month of a first phase agreement to repair U.S.-China trade relations and enhanced opportunities to acquire UK assets as British and European authorities edge closer together over Brexit, that point to a 2020 climate that will be more robust on the cross-border transactional front.

Persistence amidst headwinds

Even if some or all of the concerns and travails noted above linger in 2020, U.S.-based players are likely to have learned from their experience in the wake of the 2008 financial crisis and will consequently see opportunities for acquisitions, including through distressed M&A, that a slowdown in various economies may offer rather than allowing a small number of active players to reap the benefits of strategic and opportunistic purchases at discounted valuations.

Recent political and commercial developments suggest that only the unpredictable is predictable, and therefore it is difficult to be certain as to what lies around the corner for cross-border M&A – but there are a number of reasons why dealmakers at companies and sponsors alike should feel optimistic about outbound U.S. M&A activity levels for 2020.

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