The deal market tailed off at the end of 2018 after a generally resilient year. Here we ask the City’s leading corporate players for their prognosis on 2019
Powder dry
‘2018 started with a bang, but overall it was a tale of two halves. With competition for assets pushing valuations to eye-watering levels, investor fatigue and a degree of scepticism around the value-creating potential of M&A also took a toll. Looking forward to 2019, many of the factors that supported activity last year remain relevant. These include global growth, strong balance sheets, affordable debt and plenty of dry PE powder. But it’s hard to see 2019 topping 2018. We don’t expect a major correction, but we do anticipate a dip.’
Bob Bishop, co-chair of corporate, DLA Piper
Can’t continue
‘We have seen an almost unprecedented stubbornness in the M&A community getting on with deals and taking care of business. But common sense says this cannot continue. Only one thing seems certain: expect more uncertainty. Until now it has seemed that the market is almost hardened to it but I don’t expect this to last. Anything and everything to do with technological progress and digitisation that can help organisations in any sector to do things faster, better, cheaper will continue to attract attention and interest. We may also see more risk sharing by joint ventures and moves to secure critical supply chains as demand drops and competition intensifies.’
Keri Rees, company commercial co-head, Eversheds Sutherland
Good for sponsors
‘This will be the year of the complex carve-out, interspersed with P2Ps and equity-underwritten minority deals, some with majority control, as sponsors look to do what they do best – primary, opportunistic and downside-protected deals. The disruption and uncertainty create excellent opportunities for our sophisticated sponsor clients, many of whom have historically made their best investments during periods of economic turmoil.’
Charles Hayes, partner, Freshfields Bruckhaus Deringer
‘Disruption creates excellent opportunities for sponsors, many of whom have made their best investments during periods of economic turmoil.’ Charles Hayes (pictured), Freshfields Bruckhaus Deringer
Aim high
‘The growth nature of many AIM-listed companies means they can find it much harder to raise money from investors made cautious by the global stock market sell-off and associated volatility in the final quarter of last year. This is a result of the current macroeconomic climate rather than a systemic failure of regulation. I have no doubt that the AIM market rules will continue to be regularly updated to keep pace with the evolution of this dynamic and extremely important growth market.’
Neil Matthews, head of equity capital markets, Fieldfisher
Market fundamentals apply
‘In the very short term, Brexit does not seem to be impacting M&A activity in the way everyone has long feared. That’s perhaps because the market fundamentals remain good: cheap credit, low interest rates in Europe and favourable exchange rates for certain buyers, private equity houses having raised significant funds and under pressure to spend it. Will all this continue post-29 March? I would hope that since we have been living under uncertainty for the last two years and deal activity has been good, the world will keep turning and people will still need to do deals – for whatever reason.’
John Connell, partner, Hogan Lovells
Star gazing
‘I’d love to have a crystal ball! People will shy away more and more from the highly-competitive auction processes, other than for the truly high-quality assets. We see increased activity with significant minority investors, where private equity houses are taking just under 50% and supporting businesses through the next stage of growth. Certain sectors will remain extremely interesting, especially healthcare, TMT and financial services.’
Jonny Myers, head of private equity, Clifford Chance
Another strong year
‘From a private equity perspective, I think it will be another strong year for the sector despite Brexit as the fundamentals of doing deals are still strong. Lots of equity has been raised and is coming into the market which means the necessary dry powder is there, as are the debt markets, for larger deals.’
David Higgins, co-managing partner of London, Kirkland & Ellis
Pretty good year
‘I remain confident that 2019 will be a steady year for M&A overall despite the headwinds of political instability, increased protectionism and rising interest rates. While I don’t anticipate a record year, businesses cannot afford to stand still in times of increased competition, tech disruption, and shareholder activism. This will manifest itself in many ways, but I expect there to be more consolidation across sectors, with particular focus on TMT, energy and pharma.’
Sally Wokes, partner, Slaughter and May
A bumpy ride
‘2019 looks set to be one of the most eventful years in recent memory, especially for M&A. Brexit Day looms, but with careful planning it should not put off those contemplating transactions. For listed companies, activist shareholders are likely to continue to be a growing presence. In 2018 we saw some large positions in established companies. However, we are now seeing a change in approach—and the best advice for boards is not to pull down the shutters, but instead engage proactively.’
Roger Barron, partner, Paul Hastings
In their stride
‘The evidence in the corporate world suggests that sensible heads within the business community are simply getting on with things as best they can. I expect that markets, and corporates more generally, will take whatever solution the politicians ultimately reach in their stride. 2019 could be a bumpy ride but there will be deals to be done and I expect technology and biotech in particular to continue to be interesting and active sectors.’
Scott Cochrane, head of corporate, Herbert Smith Freehills