Press release

Dealmaking in 2018 to be fueled by accelerating sector convergence

New York, 12 December 2017

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EY Transaction Advisory Services sees fundamental sector shifts, causing disruption as described in the M&A outlook report, “Sector Seismology”

As sustained disruption and innovation shift the US corporate foundation and form new business priorities, M&A is positioned to increase in 2018, most notably between sectors. According to Ernst & Young LLP’s (EY) Transaction Advisory Services, these convergence-driven deals will dominate M&A in 2018 as companies grapple with how to remain relevant in the face of increasing competition - from both those within and outside of their industry. Deal values returned to normalized levels in 2017 as companies worked to integrate and reposition portfolios after years of record M&A, but EY notes that corporates still recognize the need to pivot and execute on opportunities that better position them for the future.

“The corporate landscape is shifting beneath our feet, and the story of ‘sector seismology’ portrays our expectation that 2018 will see even more pronounced changes that blur the lines between industries,” said Bill Casey, EY Americas Vice Chair, Transaction Advisory Services. “The norm at the sector level has completely changed, and US executives are increasingly exploring how to leverage capabilities and expertise of other industries to future-proof their businesses.”

The report outlines several other themes anticipated for M&A in 2018:

  • Technology in the driver’s seat: Technology is at the core of it all, creating a ripple effect across sectors and impacting business strategies, operations and processes. No sector has gone untouched by advances in technology, so US corporates must make optimizing technology a strategic priority while considering how it will disrupt their businesses.
  • Private equity increases deal competition: Private equity will continue to be a winner in the coming year, bolstered by strong underlying market fundamentals, record dry powder and the sector’s ability to supercharge tech and innovation through its strategic investments. Over the next 12 months, PE is likely to challenge corporates for assets more than it has anytime in the past five years.
  • Megadeals will continue, especially abroad: Companies are not waiting to complete transformative deals, and megadeals should continue in 2018 as management teams look to grow, innovate and maintain their competitive advantage. Expect to see investors get more comfortable with big deals abroad as well. Dealmakers are looking at more cross-border deal opportunities as demographics in many markets are compelling.
  • Companies rethinking competitive formulas: There are a number of new challenges that boards and c-suite executives face today, prompting more frequent and rigorous strategy reviews. Considering the impact of activists, policy uncertainty and cybersecurity threats, there’s no shortage of challenges that companies need to consider.

While disruption and convergence prevail, the ground for dealmaking is stable. According to the 16th EY Capital Confidence Barometer, the majority of US executives see the domestic economy as stable and are bullish on economic indicators, with 63% of executives viewing corporate earnings as improving and 58% expecting the stock market to improve. This positive outlook also extends to dealmaking, as 73% of US executives see the US M&A market as stable. US executives are buoyed by strong macroeconomic conditions, including low interest rates, strong credit fundamentals and surplus cash reserves.

“In 2017, we saw US executives take time to reassess and hone their corporate strategies while awaiting policy changes from Washington,” Casey said. “We expect a pickup in M&A in the year ahead as management teams take advantage of a strong economic backdrop and cross-sector opportunities to help them tap into new markets, gain share and stay ahead of competitors, as well as disruptors.”

The report, Sector Seismology, provides the aforementioned outlook for 2018 and in-depth sector perspectives containing Q&As with EY’s sector leaders representing technology, private equity, infrastructure, consumer products, retail, diversified industrials, financial services, healthcare and life sciences.

To learn more about what EY predicts for 2018, see here

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This release is issued by Ernst & Young LLP.

About EY Transaction Advisory Services

How organizations manage their capital agenda today will define their competitive position tomorrow. Our more than 14,000-strong professionals in member firms across the globe work with our clients to help them make better and more informed decisions about how they strategically manage capital and transactions in a changing world. Whether you’re preserving, optimizing, raising or investing capital, EY Transaction Advisory Services brings together a unique combination of skills, insight and experience to deliver tailored advice attuned to your needs — helping you drive competitive advantage and increased shareholder returns through improved decision-making across all aspects of your capital agenda.