Sponsors, pharma and tech fire up deal activity despite a subdued year for marquee M&A in Europe

A dearth of megadeals in 2019 did little to dampen the spirits of dealmakers with buyout teams capitalising on the ongoing private equity boom while wider pharma and tech deals drove bid activity.

On the face of it, headline figures from Mergermarket speak of a subdued year, with global M&A activity declining 6.9% from 2018 to $3.33trn. The picture in Europe was considerably more gloomy, with the continent seeing a 21.9% dive in total deal value to $770.5bn.

European M&A accounted for just 23.1% of global deals, the lowest annual percentage on record, thanks to the smallest number of $10bn-plus transactions for a decade. Only five such deals were announced last year, harking back to the aftermath of the financial crisis in 2009 when only four mega-deals were announced in Europe.

Notably, three of the five top deals (see box) by value had a pharma, medical and biotech slant, with the sector accounting for a record 21.2% of all bid activity. Deals in that space totalled $163.6bn, up 8.9% on 2018.

The European tech market was also active with deal count topping 1,094 and $76.1bn, a 26.3% increase on 2018, and fuelled by major mandates benefiting the Magic Circle on Mastercard’s $3.2bn acquisition of Danish payments firm Nets’ corporate services business. A Freshfields Bruckhaus Deringer team acted for Nets and Clifford Chance advised Mastercard.

Charlie Hayes, co-head of Freshfields’ financial sponsors group, believes this dynamic is set to continue. ‘This will be the year tech comes of age for large-cap PE; last year closed with the WebPros process firing the starting gun. Linked to that I think we’ll see healthcare tech, prop tech and further investment in web tech; it will in effect be the year of large-cap growth deals.’

Hayes is also bullish on sponsors: ‘There remains a huge amount of private capital to deploy. With the increasing prevalence of LP [limited partner] direct investing, the market could remain buoyant almost regardless of the macroeconomic climate.’

Observers of deal markets cannot fail to notice Kirkland & Ellis bursting into the top spot in Mergermarket’s legal adviser rankings for European buyouts by value from 13th place in 2018, knocking Freshfields into second position. While US firm rankings in European M&A can often be inflated by secondary finance and regulatory roles, it will be seen as a striking achievement for Kirkland. Weil, Gotshal & Manges also climbed the table to third place from 31st last year, racking up $179.1bn of deals in 2019, in another strong year for US outfits.

In their favour, the private equity market has been one of the primary forces behind M&A in recent years, with 1,445 deals worth $168.5bn announced in 2019 and the market breaking the $150bn mark for the third consecutive year.

The tide of private equity cash and Brexit-enhanced exchange rates for UK assets also encouraged a proliferation of take-privates, which amounted to $38.8bn in 2019, the highest annual figure since 2007. Last October a London-led Kirkland team secured a mandate to advise funds managed by US private equity player Thoma Bravo on its $4bn buyout of UK cyber-security company Sophos Group, with Slaughter and May advising the seller.

Last July, Richard Browne, Allen & Overy’s co-head of global M&A, took the lead advising UK aerospace supplier Cobham on its $4.2bn take-private by Advent. Browne believes the trends set in 2019 will continue into 2020. ‘The increasing size of private equity funds being raised and targeting FTSE 250 companies means the P2P market will remain busy and the march of tech isn’t going to stop.’

nathalie.tidman@legalease.co.uk