M&A plagued by volatility and growing economic concerns

12 February 2019

BDO’s M&A quarterly, Horizons, marks 2018 as a year that ended with a lower volume of deals overall, despite a strong start of the year. In further analysis of mid-market M&A activity over the 2018 calendar year, BDO’s report signals a deviation from the usual M&A pattern, in which end of year deal volumes are typically higher than at the start of the year.

As mid-market M&A advisers, BDO is used to this seasonality, but this has been absent during 2018. The last quarter of the year ended with a lower volume of deals than the preceding quarters, even dipping below 2,000 global mid-market deals in one quarter for the first time since the start of 2016. This was compounded by the overwhelming optimism due to the US tax reforms, high productivity and private equity dry powder tailing off throughout the year.

Trade disputes, particularly between the US and China, saw fund managers slip into a ‘wait and see’ strategy. BDO’s report points out that capital raised by China-focused and headquartered private equity firms declined nearly 50% during the first half of 2018.

Further compounding the wait-and-see attitude in the middle market is an inflation in valuations. The valuation hike is part of a trend towards more strategic deal making, which started as early as 2014 and which puts good opportunities out of reach. Quality investment targets now trade at mid-teen EBITDA multiples and this makes private equity funds hesitate to spend their US$ 1.14 trillion of dry powder.

A final confirmation that 2019 will be a seller’s market in mergers and acquisitions is the 189% rise of private equity firms in the market since 2000 - and the resulting stiffening of competition.

Published quarterly, BDO Horizons delivers mid-market M&A predictions and analysis from 20+ BDO M&A advisers around the world, tracking 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 and scoping out global economy trends.