U.S. mergers & acquisitions market momentum continues

Hilary Weiss : Underwriting Manager

Hilary Weiss

Underwriting Manager

In 2019, the burgeoning U.S. mergers and acquisitions market is continuing to build upon last year’s momentum.  Deals are focusing on traditional customer-base expansion and diversification of products and services by forward-looking companies within leading commercial sectors.  Domestic market transactions are being fueled by corporate tax reform advantages, less stringent regulatory environments and available sources of new capital.

U.S. transaction value at year-end 2018 stood at $1.5 trillion, a 21.5% increase from deal values that totaled $1.2 trillion in 2017, according to FactSet M&A News and Trends Report.  With more deal volume at higher values, the U.S. M&A market faces not only increasing claims frequency but higher severity of potential loss.

Deloitte’s annual survey of corporations and private equity firms revealed that market activity in 2019 will remain strong as “79% of respondents that expect the number of deals to close” within the year will increase, as compared with 70% respondent growth projections reported last year.2 Yet, underlying factors within the U.S. market present uncertainties that may challenge the reach and cost of transactions in 2019.  U.S.-imposed tariffs could inflate the costs of completing transactions amid trade tensions.  Due to supply chain disruptions, prices of goods are on the rise, thus triggering competitive pressures.

The U.S. has become a sellers’ market for aggressive buyers seeking quality transactions.  Two overarching factors underscore the trend:  1) Available private equity capital; and 2) Buyers’ record level balance sheets.  Middle market entities, defined by annual revenues ranging between $50 million and $100 million, will most likely see the greatest level of activity.  The JP Morgan 2019 Global M&A Outlook report cites “corporate clarity” as a leading market driver, whereby corporate buyers are seeking to “unlock value and refocus on core assets,” further catalyzed by increased shareholder activism.3

The M&A insurance market has accelerated in the U.S. reflecting the trajectory of deal activity.  M&A insurance protects against unexpected perils or exposure to financial loss that could be devastating if a transaction goes awry.  Disputes can arise out of multiple transaction complexities, including regulatory and compliance issues, financial irregularities and tax liabilities, among others.

Historically, M&A insurance was geared to private equity firms engaged in middle market activity to address post-closing indemnification provisions.  Domestic corporations and the influx of investment by foreign buyers have today emerged as active purchasers of the insurance coverage.   Sellers can close the transaction with fewer contingent liabilities.  Buyers are assured of greater “collection certainty.”  Professional transactional oversight also can contribute to building executive confidence in the two most important factors impacting a successful outcome:  effective integration and economic certainty.

Liberty Global Transaction Solutions has been a key player in domestic and cross-border transactional insurance, with an integrated team structure to respond to buyers’ and sellers’ primary countries of operation, thereby improving service and efficiency.  Liberty Global Transaction Solutions is expanding upon that approach with a rapidly growing team of dedicated experts within the Americas and across the globe.  Throughout the global platform, the standards for providing M&A insurance remain constant – consistency in coverage, certainty of insurance company’s financial reserves, and continuity in delivering comprehensive coverage structured to protect client’s business interests.

 

  1. “FactSet M&A News and Trends,” 2018 FactSet Research Systems, Inc.; factset.com
  2. Deloitte, “The State of the Deal: M&A Trends 2019”; https://www2.deloitte.com/content/dam/Deloitte/us/Documents/mergers-acqisitions/us-mergers-acquisitions-trends-2019-report.pdf
  3. “JP Morgan 2019 Global M&A Outlook: Unlocking Value in a Dynamic Market”; https://www.jpmorgan.com/jpmpdf/1320746694177.pdf

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