A survey of corporate executives and private equity investor (PEI) firms by Deloitte found that they believe 2020 will be an active M&A market and won’t ease from the volumes seen in 2019. M&A activity will keep pace this year to continue the lengthy period of growth in deals that has seen more than $10 trillion in domestic transactions since 2013.
The survey says that respondents believe 2020 will be a disciplined market with corporations looking at their core competencies, prioritizing strategic deals, and examining the use of their balance sheet.
With that in mind, here are some of the hottest industries for M&As expected for this year:
Technology continues to be a primary concern for many companies, and investors are increasingly exploring opportunities beyond facilities, equipment, and other tangible assets. Research by JP Morgan shows that the tech industry has more than doubled its presence in M&As in the past decade, growing from 6% in 2007 to 17% in 2018. This industry will continue to attract equity investments, experts say. And roughly 40% of 2019 Q3 deals crossed sector lines, with tech firms being top targets.
While the total deal value in Q3 2019 declined 46% from the second quarter, the overall deal value for 2019 was up 37% compared to 2018. This jump was driven primarily by larger mega deals in 2019 (nine deals for $138B) compared to 2018 (seven deals totaling $63B).
Software continued to lead tech deals in 2019, with 202 transactions for a total deal value of $28 billion. This sub-sector contributed over half (51%) of total deal volume and 71% of total deal value. Other sub-sectors were far behind in total deal volume.
The healthcare industry is predicted to experience continued growth in addition to companies that provide services to the clinical-based healthcare industry. The industry will still be popular in 2020 with private equity firms because it can perform well in both up and down economies.
Q3 2019 had several billion–dollar deals with a slight decline in multiples. Healthcare deal volume exceeded 250 deals for the ninth quarter in a row. Eight of the transactions were for $1 billion or more.
PwC says that private equity firms continue to have high capital availability. As a result, they will keep targeting physician medical group sub-specialties and technologies.
Pharma & Life Sciences
Even with a growing concern about the global economy, the Pharma & Life Sciences sector saw a big year in terms of total deal value in 2019, at more than $350B.
There were two large deals, BMS/Celgene and AbbVie/Allergan. Even so, robust activity was seen in all sub-sectors, especially in biotech, and across all types of activities (divestitures, partnerships and IPOs). The sector witnessed 12 megadeals in 2019, more than the number of megadeals that were announced in each of the prior two years.
This activity is expected to continue this year. PwC believes that mid-sized biotech companies will continue to drive the activity because of the accelerated pace in the development of new life-saving drugs.
A more robust economy, rising rates, along with tax reform resulted in better earnings for the banking industry in 2018. Industry experts anticipate bank M&A activity to increase, despite only a 2% increase in deal volume from 2017 to 2018. There was just one deal that exceeded $1 billion during Q3 of 2019. The deal elevated M&A value for the first nine months of the year to $49.8 billion. Of that, nearly three-quarters (70%) was recorded during the first quarter.
In August, CIT Bank, N.A. announced that it entered into a definitive agreement and plan of merger to acquire Mutual of Omaha Bank from Mutual of Omaha Insurance Company for $1 billion. The transaction was to be completed with cash and as much as $150 million in common stock of CIT Group Inc., the parent company of CIT Bank. CIT said it would determine the total value of stock that will change hands in the transaction.
Despite the flat numbers last year, with regulatory relief set for mid-sized banks, things look to be better for U.S. bank M&As.
Other Hot Sectors of the Market
The leading sectors by 2019 deal volume through the end of September 2019—along with technology—were consumer markets, media and telecom, real estate, and manufacturing. When looking at sectors by value, the leaders were pharma and life sciences, media and telecom, oil and gas, tech, and manufacturing.
JPMorgan expects M&A activity in 2020 to be driven by companies seeking to bolster their businesses, especially in periods of prolonged uncertainty.
They note that equity investors have been rewarding M&A transactions that strengthen businesses and have been penalizing acquiring companies that have taken undue risk in uncertain times. They anticipate that companies will stay with their core competencies in 2020 rather than adding new growth or venturing into unproven markets.
Read about Carpenter Wellington's mergers and acquisitions practice.