5 minute read 26 Oct 2018
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Capital Briefing: How to make better capital allocation decisions


EY Americas

Multidisciplinary professional services organization

5 minute read 26 Oct 2018

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In the third quarter 2018 report, we provide insights on recent developments and a longer-term outlook across M&A, IPOs, PE, debt and bond markets.

The quarterly update may help you decide if it’s time to transact. Transactions subject matter professionals across EY member firms bring you global and regional capital markets insights. Read the latest highlights below on mergers and acquisitionsinitial public offeringsprivate equityloans; and bonds.

Mergers and acquisitions

Global M&A topped US$3t in the first three quarters of 2018 – the first time since the global financial crisis

Global M&A topped US$3t in the first three quarters of 2018, but slowing deal activity in the third quarter points to a softening of dealmaking in the near term. In 3Q18, US$770b worth of deals were recorded, with only 5 megadeals announced compared with 31 in 1H18, which led to a drop in deal value growth.

Despite the uncertainty around Brexit, the UK is the top destination for cross-border deals, with deal value increasing by 250% year on year (YOY) to reach US$216b in 2018. 

According to the EY 19th Global Capital Confidence Barometer (CCB), confidence in the M&A market remains near record highs, supported by market factors such as a positive economic environment and strong corporate earnings. However, rising geopolitical and regulatory concerns are perceived as a growing impediment.

With rising external uncertainties, executives are increasing the frequency of their own internal portfolio analysis, as observed by the CCB. The focus of these portfolio reviews is to identify assets at risk to be divested. Recycling capital through divestiture may likely underpin deal flow in the next 12 to 24 months.



megadeals were recorded in YTD 2018 – a record number.

Global M&A activity - quarterly comparison

M&A deal value and volume - year to date comparison

*Volume based on deals greater than US$100m.

Source: Dealogic and EY analysis.

Initial public offerings

Unicorns drove the global IPO activity despite ongoing geopolitical uncertainties and trade issues

Despite ongoing geopolitical uncertainties and trade issues, year-to-date (YTD) 2018 global IPO activity levels were significantly above the 10-year median in terms of number of deals and proceeds. In a historically quiet quarter, 3Q18 global IPO activity was notably lower by number of listings in 2Q18 and significantly down from 3Q17. However, an increase in unicorn IPOs in 3Q18 pushed IPO proceeds above both 2Q18 and 3Q17.

The outlook for global IPO activity is mixed for the rest of 2018. Technology, life sciences, diversified industrial products, and consumer products and retail sectors will continue to drive IPO listings for the rest of the year. Cross-border activity is expected to maintain its momentum with the US, Hong Kong and the UK continuing to be the top destinations.

Positive first-day pops and post-IPO performance in many markets are feeding investor appetite, particularly for technology and life sciences IPOs. Although deal numbers as a whole may be lower YTD, higher-quality companies, unicorns, mega IPOs and carve-outs are likely to push proceeds well beyond 2017’s levels.

Global IPO activity - quarterly comparison


Source: Dealogic and EY research.

Private equity

Investor enthusiasm remains high as fund-raising and deal activity see continued momentum

PE activity remains robust. Fundraising activity increased in 3Q18, almost matching last year’s record levels. PE firms raised US$175b during the quarter, compared with US$181b in 3Q17. However, because the first half of this year saw some moderation in closings, aggregate fundraising is down 19% from 2017. Activity was driven by the closing of large vehicles by global PE houses. As a result, dry powder remains at a record highs and PE firms currently have more than US$638b in capital available for deals, up 6% from 18 months ago.

Firms remained committed to deploying this capital, having announced deals worth US$331b so far this year, up 14% from the same period a year ago, making it the most active year since 2007. The EMEA region has seen particular strength, up 30% by value compared with last year. Deals in the technology sector remain a significant driver, with activity up 20% from a similarly strong 2017. PE firms are investing across the board, in both large legacy companies and smaller start-ups.

PE acquisition values and volume quarter


Source: Dealogic and EY research.


New-issue leveraged loan volume declined in both the US and Europe in 3Q18

Uncertainty in the commodities sector and broad volatility across the equity and bond markets supressed the loans market.

US leveraged issuance volume reached its lowest level in over two years as opportunistic issuers stayed away amid higher spreads. The European loan market also recorded its lowest quarterly volume since 3Q16.

The US leveraged loan market is poised to face the return of opportunistic repricings in the coming quarter in the absence of substantial new jumbo financings, meaning thinner spreads and looser terms.

A better balance between investors and borrowers was evident during the third quarter in Europe, but September has shown tentative signs of conditions starting to favor issuers a little more, as some are being offered better pricing. This trend is expected to continue.

The investment-grade loan market has been fairly liquid and banks continue to allocate capital to their core relationships.

Leveraged loan new-issue volume (US$b)


Source: LCD comps.


Global high-yield activity remained low in 3Q18

The global high-yield activity remained low in 3Q18. New-issue bond volume declined in both Europe and the US market. A preference for loan financing remained in force through the third quarter, further evidence that bonds are losing traction as a driver of LBO activity.

The dominance of loans was widely expected this year. Sponsors currently prefer the loan product, which is redeemable at par at any time, can be repriced at any time and is cheaper than high-yield. This trend is expected to continue in the coming quarter.

The European high-yield market may experience volatility in 4Q18, while the US high-yield market is expected to pick up in the coming quarter.

The global investment-grade corporate bond market is getting saturated in the rising global interest-rate markets.

Leveraged loan new-issue volume (US$b)


Source: LCD comps.


Capital Briefing provides insight on recent developments and the longer-term outlook for global capital markets.

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EY Americas

Multidisciplinary professional services organization