• BDO warns of 6-year low in middle-market M&A activity

BDO warns of 6-year low in middle-market M&A activity

18 June 2019

BDO’s M&A advisers point out a plunge in deal activity over the first quarter of 2019, when mid-market mergers and acquisitions dropped to 2013 levels. Deals fell from 2,000+ transactions per quarter to less than 1,500, while in the same period deal value dropped from over US$ 190bn to below US$ 130bn.

BDO attributes the sharp decline to a number of political factors, including EU, Canada, Mexico, US and China trade relationships. In the UK and Ireland, midmarket M&A activity sank 35% in the first quarter of 2019, due to a no-deal Brexit perspective. BDO explains that the drop occurs across both strategic and financial buyers alike but that, with either group showing no shortage of available capital, the downturn could equally be related to buyer confidence.

Looking at geographies, the dip was seen in 12 of the 17 regions that BDO’s global mid-market M&A review, Horizons covers. There were marked declines in activity in North America, China and Europe: only the Middle East, India, Africa and Japan held up. Turning to industries, the sharp fall-out was across the board - every one of the nine industry sectors that Horizons covers having suffered, including the usually failsafe industrials & chemicals and technology, media and telecommunications (TMT).

Political instability, potential trade wars and volatile markets slowed down M&A deal making according to BDO, amplified by the general sentiment that North America will soon be entering a recession and a general decline in global economic growth.

Despite the sharp decline at the start of 2019, BDO believes these factors will drive deal flow throughout months to come, the key reasons being:

  • Strategic buyers lead deal flow by 85% - but they remain selective and price conscious
  • Larger groups divesting their non-core activities – driven by focus and by shareholder influence
  • Private equity growth – there are record levels of dry powder and an increasing number and spread of funds. If there is a slowdown in the appetite of boardrooms, private equity should benefit
  • Cash and capital are available – there is a large amount of cash on corporate balance sheets, as well as in institutional and private wealth funds and attractively priced debt
  • Industrials & Chemicals and TMT remain the dominant industry sectors – between them, they represent more than one in four transactions
  • Digital capability is a strong driver of deals – the acquisition of technologies or capabilities – not just by TMT groups but by all types of acquirer.

Published quarterly, BDO Horizons’ articles are authored by more than 20 BDO M&A specialists, showcasing global deal activity and providing invaluable insights into where investment is flowing. With topics ranging across regions and industry sectors, Horizons provides a satellite view, integrating impacts to the global economy and scoping out trends.