The M&A cycle has been remarkably persistent. As we move deeper into 2019, looking at 2018 can provide some insight into the key trends that will shape this year.
General Themes That Shaped 2018
Software companies were disruptors in virtually all sectors, from automotive to fintech. Corporations, government entities, and large institutions continue to be primary drivers of the growth in software. While a few years ago the adoption of new software was challenging, the evolution of cloud-based offerings has accelerated integration speed. This continues to drive strategic and investor interest.
Relative to 2017, 2018 was a great year for overall M&A, even in spite of public equity volatility. This strength offers a lot of hope for 2019.
How 2018 Can Shape 2019
Though interest rates have risen, debt remained accessible in 2018, and that trend will almost certainly continue. PE and venture capital firms are currently sitting on dry powder in excess of a trillion dollars. That money needs to move, which will encourage more transactions. Perhaps most significantly, innovation via acquisition continues to be a major drive for tech and non-tech companies. This year will likely be another strong year.
Another thing we’re seeing is the blurring of lines between tech and other industries. Tech is becoming more integrated into industry as a whole, as companies make major technological investments. Financial institutions were early tech adopters. Many banks now look more like technology companies.
What’s Ahead for 2019?
The valuation environment for 2019 remains high, but cross-border issues are becoming a concern for global firms. The political environment is unpredictable, and so too are trade relationships, IP investments, tariffs, and more.
It’s unclear how this might affect M&A activity in 2019. Some players may be concerned about increased competition. But the depth of the U.S. PE market has increased the number of deals available. PE groups continue to sell businesses, and this may accelerate M&A activity.
Another thing we’re seeing is that hold times are decreasing because PE firms are quickly reaching their goals, then selling. They’re more aggressive and eager to differentiate themselves. They spend more on due diligence early in the process. This plays a role in a quicker, more seamless integration. It also means PE expects more from sellers, and sellers must be well-prepared to make a deal if they want to get the best price and the most favorable terms.
