NEW YORK/LONDON (Reuters) - The value of mergers and acquisitions globally dropped slightly in the third quarter of 2017, as big deals worth more than $10 billion were scarce given uncertainty about economic policy in the U.S. and Europe in particular, leaving dealmakers to feast on a plethora of smaller transactions.
Even as major stock markets continued to climb higher, big companies were wary of pursuing transformative deals in the quarter, as the future of U.S. President Donald Trump’s agenda on taxes, healthcare and infrastructure spending remained unclear, while Britain’s Brexit talks, and North Korean’s nuclear ambitions also weighed on chief executives’ appetite to take risks.
“Jumbo deals have subsided in part because of the continued uncertainty over tax policy and deregulation - removing that overhang would be a positive catalyst for M&A,” said Matt McClure, Americas head of mergers & acquisitions at Goldman Sachs Group Inc (GS.N). “Even if it becomes clearer that the status quo isn’t going to change soon, you may see companies revisit larger transactions that they have put on hold.”
The value of global merger and acquisitions slipped to $765 billion in the third quarter, down 5 percent year-on-year and the lowest third-quarter level since 2013, according to preliminary Thomson Reuters data.
“It’s a big bet to pursue a mega-deal in this environment and boards need more time to act. For sub-$5 billion deals, instead, there are fewer hurdles and it’s easier to get to the finish line,” said Steven Baronoff, chairman of global M&A at Bank of America Corp (BAC.N).
The biggest deal to be signed in the third quarter was the U.S. aerospace and industrial company United Technologies Corp’s (UTX.N) $30 billion cash-and-stock acquisition of U.S. avionics maker Rockwell Collins Inc (COL.N).
“After the summer break there has been no big rush to get the ball rolling on deals. This could be a sign that activity will remain flat or subdued and political uncertainty will continue holding back large transactions,” said Scott Hopkins, an M&A Partner at law firm Skadden, Arps, Slate, Meagher & Flom LLP in London.
Third-quarter M&A volume fell to $309 billion in the United States, down 6 percent year-on year. In Europe, M&A totaled $343 billion, down 15 percent year-on-year, while in Asia, M&A was 226 billion, up 11 percent year-on-year.
“The market for deals overall has held up well, given the rich valuations and macroeconomic and geopolitical uncertainty,” said Mark Shafir, co-head of global M&A at Citigroup Inc (C.N).
However, private equity firms defied expensive valuations and took advantage of cheap debt financing terms to spend the mountains of cash they have raised from investors on acquisitions. Global private equity-backed M&A activity has reached $212 billion year-to-date 2017, a 25 percent increase compared to last year and the highest since 2007.
M&A in the energy and power sector hit a two-year high of $362 billion so far in 2017, up 7 percent over the same year-to-date period in 2016. M&A in the industrials sector totaled a record-breaking $326 billion so far during 2017, up 21 percent compared to last year at this time.
In a sign that some companies are starting to believe the Trump administration may be more lenient towards antitrust enforcement, T-Mobile US Inc (TMUS.O) and Sprint Corp (S.N), the third and fourth largest U.S. wireless carriers, made significant progress in their merger talks this month, sources have told Reuters.
“Over the last year valuations have gone up, and companies have continued to be more cautious. However, they are still very actively looking at strategic transactions,” said Anton Sahazizian, head of U.S. M&A at Moelis & Co (MC.N).
(This version of the story corrects headline to third quarter, not year-to-date; in third-to-last paragraph adds dropped words)
Reporting by Greg Roumeliotis in New York and Pamela Barbaglia in London; editing by Clive McKeef