We are in the second quarter of 2019 and deal data is now available through the end of the first quarter 2019. In this report, we review our region’s most active industry sectors and offer an outlook for Summer 2019.

Our anecdotal assessment of deal activity is one of continuing high valuation and high volume of acquisition closings. Founder-owned, privately-held companies in active industries continue to attract significant interest from buyers.

M&A Transaction Report by Sector

Aerospace

Despite a slow start to 2019, the fundamentals in both commercial and defense areas exist for another solid year of deal activity.

Highlights:

·        The Arms and Vehicles category continued to lead deal value this quarter, followed by Software and Security Systems. The strong showing of these two categories in deal value underscores continuing focus on digitization and defense capabilities.

·        The majority of deal volume was composed of Aircraft and Parts followed by Arms and Vehicles.

·        Q1 deal value and volume was the lowest in the past three years. The General Dynamics/CSRA transaction in 2018 accounted for the year over year drop in value. Excluding this, Q1 deal value was relatively strong.

Chemicals

With high available cash levels and a stable economy, Chemical M&A activity looks positive, despite unknown factors such as trade tariffs.

Highlights:

·        The Specialty Chemicals sector will likely continue high deal multiples and values, which will offset lower volumes in other areas of the Chemicals industry.

·        The following niches within chemicals are forecast for strong deal activity in 2019: plastics compounding, adhesives, health and nutrition additives, coatings, specialty materials, and specialties distribution.

In this late cycle of the market, companies are seeking to optimize their core holdings and divest non-core, allowing them to focus on building scale and efficiency in their core.

Construction and Engineering

Even with solid underlying fundamentals, construction and engineering deal activity continues to be dampened by ongoing trade disputes and tensions. Any resulting resolutions in Q2 could lead to increased activity.

Highlights:

·        The Construction sub-sector led in deal value and volume, followed by Construction Materials Manufacturing and Homebuilding in deal value; Civil Engineering and Construction Materials Manufacturing in deal volume.

·        As the construction industry faces labor shortages, any company with innovation to eliminate or reduce labor needs could be a target for M&A activity in 2019. Likewise, companies with connectivity and automation capabilities could also be attractive targets.

·        Progress on China-US trade relations, continuing discussions of an infrastructure bill and population growth driving the need for housing and infrastructure/replacement of aging infrastructure are all positive factors that could revive M&A activity.

Energy

With stable commodity prices, deal values will likely be lower in 2019 than the 2018 values driven by corporate restructurings. 

Highlights:

·        The sector maintains its tight focus on operating within cash flows and producing investor returns. Companies operate within this framework and look for deals of scale, technology, or improved operational efficiency.

·        The 2019 Annual Energy Outlook (US Energy Information Administration) stated that U.S. production will set annual records for the next 8 years. The US reclaimed the title of world’s largest oil producer in September of 2018 and has since grown another 10%, now up to 12,200 barrels per day in May, 2019.

·        Midstream was the one sub-sector with solid Q1 deal activity. Shale, upstream, downstream, and oilfield services all had muted activity in Q1.

Healthcare

Analysts expect the Healthcare M&A market to remain robust due to a variety of factors such as continuing regulatory uncertainty, cross-industry and vertical integration trends, and consumer centric issues such as high costs and volumes. 

Highlights:

·        Cetene Corporation recently announced it would acquire WellCare Health Plans. Two other notable deals during Q1 were Eli Lilly acquiring Loxo Oncology and Bristol-Myers-Squibb announcing an acquisition of Celgene.

·        While Q1 deal volume declined quarter over quarter and year over year, this is not indicative of future decline. The number of M&A transactions in Q1 was still above 200, as it has been since Q4 2014.

·        Long-Term care again led deal volume, while Managed Care, which encompassed the Cetene/WellCare deal led deal value.

Industrial Manufacturing

Even with sound deal fundamentals, Q2 could be as muted as Q1, but remain optimistic for the remainder of 2019. 

Highlights:

·        The Rubber and Plastic Products sub-sector led in deal value, followed by Industrial Machinery. Industrial Machinery led deal volume, with Electronic and Electrical Equipment second in deal volume.

·        Positive factors that could impact future deal activity include: i) manufacturers looking for digital solutions for efficiencies; ii) a divided Congress resulting in minimal regulatory change; and iii) record levels of cash on hand and low interests providing low cost of capital.

·        Disruptive factors for upcoming deal activity could include: an economic slowdown with a decrease in US GDP and uncertainty with trade relations and tariffs.

Transportation, Logistics, Distribution

Transportation and Logistics deal activity continues to feel the headwinds of regulatory, trade, and economic uncertainty. 

Highlights:

·        The Logistics sub-sector led deal value and the Shipping sector led in deal volume.

·        While the sector waits for macro uncertainties to dissipate, the evolution of supply chains and the adoption and acquisition of new technologies may help sustain deal activity.

·        The industry noted decreased truck shipments and sea container counts for the year as trade discussions continue and there is potential for a global economy declining rate of growth.

How Can ClearRidge Help You Sell Your Business?

Clients trust ClearRidge to deliver a confidential and discrete preparation and sale process, to remove obstacles to close a transaction and ensure only the most qualified buyers make it to the closing table, with the capital and commitment to close a transaction. 

ClearRidge is the leading M&A advisory firm in our region, closing more transactions than any other firm and recognized for the quality of our work and success at managing and arranging transactions for our clients’ companies. For further information on our team, industry expertise and transactions history, please visit www.ClearRidgeCapital.com. 

Sources: This report has been compiled from reports and research including federal data, independent analysis, Reuters, Janes Capital Partners, Kiplinger, PCE-Companies, Mergermarket, PricewaterhouseCoopers, and SDR Ventures.

Note: In the report, you will see that some of the deal data is for larger public companies. The most reliable and timely data tends to be for the larger companies in each industry; however, deal activity of the largest corporations is also a good barometer for M&A activity among midsized companies in the same industry.