U.S. Deal Value Plunges in Third Quarter

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By Sara Merken

Aggregate deal value involving U.S. targets fell significantly in the third quarter, depressed by political uncertainty in the nation and elsewhere.

Announced and proposed transactions by U.S. and foreign acquirers to buy U.S. companies fell 45 percent to a little over $300 billion in the third quarter, compared to just over $560 billion in the second quarter, according to Bloomberg Law data. In third quarter 2016, total deal value involving U.S. targets reached more than $450 billion.

The $90.9 billion in mega deals—transactions over $10 billion—with U.S. targets proposed or announced last quarter is the lowest since the fourth quarter of 2013, when no mega deals were recorded.

In terms of deal count, the data showed that large deals—transactions between $1 billion to $10 billion—involving U.S. targets saw the steepest fall. There also were fewer middle-market deals—transactions between $100 million to $1 billion—compared to the second quarter. Middle-market deal count involving U.S. targets was up, however, compared to the first quarter.

Mergers and acquisition attorneys contacted by Bloomberg BNA say the significant fall in deal value isn’t surprising because of the overall political climate in the U.S. “Uncertainty is never good for getting deals completed,” said Thomas Vaughn, a transactional attorney based in Dykema Gossett PLLC’s Detroit office.

In the fourth quarter, mega and large deals are likely to take a backseat, while smaller deals driven by private equity will continue to be robust, the attorneys said.

We are in the “era of the middle-market deal” as opposed to the “heyday of the mega deal,” said Vaughn, who also serves as U.S. corporate counsel for a number of international companies.

White House Agenda, CFIUS

The administration’s “inability to move its agenda through has likely had some negative impact, particularly for foreign buyers,” who are wondering what the delay means for the marketplace, Vaughn said.

The Trump administration’s pro-business agenda on tax and regulatory reform has stalled in Congress.

Increased scrutiny by the Committee on Foreign Investment in the U.S. (CFIUS) also is sparking concern for foreign buyers, particularly the Chinese, who are now unsure about the prospects for their U.S. deals, Vaughn told Bloomberg BNA.

CFIUS is a multi-agency panel headed by the Treasury Department that reviews national security implications of acquisitions of U.S. businesses. In September, President Donald Trump blocked a $1.3 billion deal between U.S. chipmaker Lattice Semiconductor Corp. and Canyon Bridge Capital Partners, a private equity firm backed by a Chinese investor. The president opposed the proposed acquisition based on CFIUS’s recommendation.

Broadcom Ltd.’s $5.9 billion purchase of Brocade Communications Systems Inc. and Genworth Financial Inc.’s $2.7 billion deal with China Oceanwide Holdings Group Co. are among the transactions that have been delayed pending CFIUS approval.

Mid-Sized Deals Thriving

There is also political uncertainty in global markets, rattled by Brexit, military provocation from North Korea, and other events, said David Gibbons, a deal attorney at Hogan Lovells who’s based in Washington and London. However, while political climates are uncertain, markets have performed well, adding to the cost of M&A and making bigger deals less attractive, Gibbons told Bloomberg BNA.

Meanwhile, smaller deals involving private equity buyers continue to thrive, Gibbons said. There is a lot of capital to invest, and reasonably inexpensive financing is available, he said.

“While not showing the same volume or value of deals as the last two years, this is a market that is seeing activity at pretty significant levels” compared with historical norms, Gibbons said.

To contact the reporter on this story: Sara Merken in Washington at smerken@bna.com

To contact the editor responsible for this story: Yin Wilczek at ywilczek@bna.com

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