The second quarter of 2019 was a big one for U.S. mergers and acquisitions with 56 deals worth over $367 billion announced. This activity prompted us to write a report about the quarter and we decided to make it a regular feature of Inside Arbitrage. In our last report we wrote,
This Goldilocks economy is perfect for deal making with interest rates low because of international pressures (the trade wars and low/negative rates in Europe) and the domestic consumer remains strong after years of low unemployment. If these conditions persist through the end of the year, we are likely to see this elevated pace of deal making despite the fact that valuations continue to creep higher.
Quite clearly we were very wrong. The third quarter of 2019 was dismal for new deals with just 44 deals worth over $75 billion announced, a huge decrease year-over-year and from the prior quarter. Forty seven pending deals completed in Q3 2019 and two failed. There were also two instances where arbitrageurs were pleasantly surprised by higher offers when Liberty Tax (TAXA) agreed to pay 44% more to acquire Sears Hometown and BC Partners bumped its price for Presidio (PSDO) to $16.60 from $16 per share. The success rate for deals that closed or received a higher offer in 2019 was 96% and is inline with research we have done in the past. We wrote the following about failed deals in our last report,
What really surprised me was the failure rate for deals, which felt like it was higher this year but turned out to be consistent with the roughly 4% to 5% failure rate we have reported in our prior research here and here. Tight spreads for most deals, long drawn out regulatory approvals and a drop in the price of certain acquisition targets that once appeared safe were some of they key challenges arbitrageurs faced this year. On the positive side, we also saw several deals where new higher offers prevailed.
They say a picture is worth a thousand words and so we decided to put together this infographic that provides the key highlights for Q3 2019.