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Megadeal Mania Hits The Markets

City

First-quarter deal-making value jumped a whopping 60 percent over the last quarter, and while the number of deals declined, it was definitely a quarter that thought bigger was better, and there were a few surprises.

Perhaps the biggest surprise was that the renewable energy sector accounted for 36 percent of Q1 deal value, according to PwC, as M&A activity was dominated by the power and utilities sector, but the technology sector impressed with $60 billion in tech deals. 

(Click to enlarge)

Source: PwC

Average deal size increase an unbelievable 103 percent from Q4 2017. While the average deal size in the previous quarter was around $1 billion, in Q1 2018, it was almost $2 billion. 

And when we talk about megadeals—deals $5 billion or more—those also doubled. Q4 2017 saw one megadeal, while Q1 2018 saw two.

A total of five deals worth more than $1 billion were sealed in 2018 and together they accounted for more than 90 percent of the quarter’s total deal value.

PwC’s Top 10 Deals:

(Click to enlarge)

It gets even more interesting when you pick it apart by sector:

Power / Utilities

The power industry comes first because it’s claim to megadeal fame is that the biggest deal of the quarter, contributing 50 percent to the overall deal value, was in this sector.

Dominion Energy’s agreement to acquire SCANA Corporation in a transaction valued at $14.5 billion should poise Dominion to become one of the biggest utility companies in the world, according to PwC.

And look out for more takeovers in the coming months because, as PwC notes, most small- and mid-cap utilities are still acquisition targets. The trend remains consolidation.

It’s also worth noting that PwC says “dealmakers also remain interested in gaining more exposure to gas and electric transmission infrastructure”—a sub-sector of utilities.

“Natural Gas Transmission and Distribution trading multiples continue to set the high-end of the range of multiples for sub-sectors within the power and utilities industry, due to a number of factors including continued interest in this sub-sector provided growth opportunities with the rapidly changing makeup of our nation’s generation supply,” PwC said in its report. 

Media & Telco

Media and telecommunications actually saw the reverse of the trend: deal volume was up, while deal value was down. But that’s because they factored in the nearly $70-billion Disney-Fox megadeal in Q4 2017. Related: Earnings Beat: 10 Stocks That Crushed Expectations

For Q1 2018, deal volume in this sector reached a two-year high, with 244 deals and private equity investment topping the list as they eye future growth opportunities in media and telco. Total deal value was $37.6 billion, and the quarter saw two megadeals announced for more than $5 billion.  Deal volume was led by advertising and marketing within the sector, but the sub-sector of broadcasting saw the biggest increase of 133 percent quarter-to-quarter.

Technology

A total of 506 technology deals were announced in Q1 2018, with a total value of $59.4 billion, including four megadeals. All told, that represents double-digit increases quarter-over-quarter. Deal value in Q1 was up 36 percent from the year before and deal volume was up just 4 percent.

(Click to enlarge)

Source: Pwc

The biggest transactions was the $9.6-billion acquisition of GSRA Inc. by General Dynamics Corp.

“Consistent with recent trends, there is a continued focus on investments in small and early-stage companies,” PwC noted in its report.

Software held onto its leading sub-sector role in the quarter.

PwC expects the technology sector to remain health, although it did note that “several head winds are building up, including concerns around privacy, trade wars and regulatory deal scrutiny.” But the biggest trends set to continue include semiconductor consolidation, cloud-centric Enterprise IT (look for disruption), “sizable” FANG growth, and lots of venture capital.

(Click to enlarge)

Source: PwC

By Fred Dunkley for Safehaven.com

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