U.S. Markets closed

The great merger and acquisition boom is still alive

Brian Sozzi
Editor-at-Large
The great merger and acquisition boom is still alive

Corporate deal making isn’t as hot as it was last year and early 2018.

The volume and value of global M&A declined in the third quarter, according to Moody’s Analytics. There were 21,045 deals globally in the third quarter, down 18% from the second quarter. Deal volume dropped 16% from the prior year. At $1.1 trillion, the total value of deals fell 25% and 3%, compared with the second quarter and third quarter last year, respectively.

Global deal-making reached a new record in the first nine months of 2018.

But despite some inauspicious conditions, like rising interest rates, rockier equity markets and President Trump’s trade war with China, experts say the global M&A boom is still alive and well.

“M&A will be fine into 2019,” says Tom Bonney, senior managing director at CBIZ CMF, the national private equity advisory practice for CBIZ. Bonney, who has covered the M&A market for 25 years, adds, “Private equity is sitting on a ton of dry powder and companies have a cash windfall, thanks to the Trump tax plan.”

Technological disruption will also force companies to combine, he says. The alternative to not joining forces is to be run over by the rapid pace of tech change and its associated cost.

A year-end boost in M&A?

Others pros Yahoo Finance spoke with hint that the traditional year-end M&A boom may appear this year as well, even in the face of heightened market turbulence. With rates headed higher and stock multiples now cheaper than earlier in the year, companies could be keener to pull the trigger on a transaction.

Joe Culley, head of capital markets at Janney Montgomery, sees the M&A pipeline as “very healthy” looking out into 2019.

“The smart money loves this stuff [market volatility] as it frees up opportunities,” Culley says.

A little angst on the present health of the M&A market is understandable. With the emergence of market volatility, CEOs could table deal-making in the hopes of getting better prices down the line. Not to mention that higher interest rates will raise the cost of debt to fund a deal.

Those factors took a modest toll on the main players in the M&A market in the third quarter – the big investment banks.

JPMorgan Chase (JPM) said Friday that its third-quarter investment banking revenue at $1.7 billion was flat vs. the prior year. Although the bank touted market share gains in equity underwriting, it called out lower debt underwriting and advisory fees – two hallmarks of companies doing deals. Citigroup’s (C) investment banking revenue cratered 8% from the prior year to $1.2 billion, mostly on lower underwriting fees.

To its credit, Citigroup chief financial officer John Gerspach told analysts on a conference call that “M&A is still doing well.” Citigroup said it expects investment banking revenue to increase in the fourth quarter.

Wells Fargo (WFC) added to the concern, reporting that its investment banking revenue fell slightly in the third quarter.

Brian Sozzi is an editor-at-large at Yahoo Finance. Follow him on Twitter @BrianSozzi

Read more:

Burger King CEO: we will be ‘much bigger’

Philip Morris International tries risky move of making cigarettes extinct

PepsiCo isn’t looking at a ‘substantive’ breakup, CFO says

3 massive problems J.C. Penney’s new CEO must solve

Snap CEO reportedly says its redesign was botched in an internal memo