The last quarter of 2019 ended with a bang for U.S. mergers and acquisitions with $188 billion worth of deals announced in the quarter bringing the total for 2019 to $938 billion. While this is impressive, it fell shy of the over $1 trillion worth of deals announced in 2018.
We launched this series of articles after 56 deals worth over $367 billion were announced in the second quarter of 2019 and 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.
For a while it looked like we might be wrong when just 44 deals worth over $75 billion were announced in Q3 2019, a huge decrease year-over-year and from the prior quarter. However Q4 2019 turned the tide and helped the year end strong. This strength is surprising considering an environment of increased regulatory scrutiny that derailed Illumina’s (ILMN) acquisition of Pacific Biosciences of California (PACB) and has dragged the merger of Sprint (S) and T-Mobile (TMUS) through the courts even after both the DOJ and FTC gave the deal their blessings.
Deals that are not subject to such regulatory scrutiny are closing quickly, often in the matter of weeks. Arbitrage spreads on deals are on two ends of the spectrum with either very large spreads reflecting regulatory risks or tiny spreads in this low interest rate environment for deals with low risk. A total of 194 deals were announced in 2019 and four of these ended up receiving higher offers. The most interesting of these was Anixter International (AXE), where Clayton, Dubilier & Rice got into a bidding war with Wesco International (WCC) which pushed the original $81 per share price to as high as $100 per share. We also saw six deals fall apart in 2019 with half of the deal failures related to regulatory issues. The failure rate remains consistent with the roughly 4% to 5% failure rate we have reported in our prior research here and here.
They say a picture is worth a thousand words and so we decided to put together this infographic that provides the key highlights for Q4 and the full year 2019.
As usual we track all active deals and their spreads in our Merger Arbitrage Tool, which includes not just spreads and deal updates but also which risk arbitrage funds hold positions in specific stocks.
Voluntary Disclosure: I hold long positions in Pacific Biosciences of California (PACB) and Sprint (S).