M&A Lull Sign of Things to Come?
The M&A market cooled off in the third quarter after a blistering start to 2018 and conclusion of 2017. The slowdown was modest. According to Dealogic, there have been 279 U.S. deals of $100 million or more worth a total of $368 billion since July 1, very healthy numbers when viewed in longer perspective; on an annualized basis, those numbers would still be the sixth-best year for U.S. M&A since 1995. But the number of deals was the least in any quarter since the start of last year, and Q3 dollar volume was 24% less than Q2. Four of the five largest deals in the quarter were announced in July, the fifth on Aug. 2. Several lawyers said this summer that corporate valuations are very full and M&A is near or at a peak, though none was willing to call a market top.
Fittingly, the largest deal of the quarter was in energy, a sector that saw a significant amount of activity. Energy Transfer Equity LP agreed to pay $27.6 billion in partnership units for the public float in its controlled subsidiary Energy Transfer Partners LP, a deal that’s part of a wave of rationalizations of MLP structures. Enbridge Inc. is engaging in the same process; the Calgary-based energy transportation company is paying a total of $8.75 billion in stock to buy out three MLPs and Enbridge Income Fund.
There were also two large shale deals in Q3. BP plc agreed to buy Petrohawk Inc. from BHP Billeton for $10.5 billion in cash, while Diamondback Energy Inc. inked a deal to buy Energen Corp. for $9.2 billion in stock and assumed debt.
After the ETE deal, the largest transaction announced in Q3 was Dell Technologies’ $21.7 billion agreement to buy VMWare Inc.’s tracking stock in a deal that would also serve as an IPO for Dell five years after the computer manufacturer went private in a buyout sponsored by Silver Lake Partners and company founder Michael Dell.
The most prominent buyout in Q3 may have been one that didn’t happen: Elon Musk‘s swiftly aborted effort to take Tesla Inc. private, a quest that seemed quixotic from the start given Tesla overhanging debt, hefty price tag and relatively modest cash flow. Musk may not have landed a PE buyer, but he did attract the attention of the SEC, which is investigating Musk’s tweets about a possible buyout.
There were two large buyouts signed in Q3. Cannae Holdings Inc., CC Capital Management LLC and Thomas H. Lee Partners LP joined forces in agreeing to pay $6.9 billion for Dun & Bradstreet Corp., and Carlyle Group LP agreed to buy Sedgwick Claims Management Services Inc. from Kohlberg Kravis Roberts & Co. LP in a secondary buyout. PE deal volume of 96 deals of $100 million or more in Q3 was on par with activity since the start of 2017, though dollar volume of $51 billion was the lowest since the first quarter of 2017 and well off of the 2018 Q1 number of $80 billion. That suggests PE firms are having a harder time finding attractive assets at the same time as companies are engaging in less M&A.
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