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

Overall, deal valuations remain high, with continuing volume and value of transactions. Founder-owned, privately-held companies in active industries continue to be in high demand for acquisitions.

M&A Transaction Report by Sector

I. Aerospace

Aerospace M&A activity rebounded slightly after a slow first quarter. Deal value was up considerably due to the boost from the Raytheon/UTC merger.

 Highlights:

• Analysts expect deal valuations to remain high throughout the year.
• In sub-sectors, Electronic Equipment led in both deal value (Raytheon/UTC) and deal volume, followed by Aircraft Parts and Arms/Vehicles.
• Consolidation continues in several sub-sectors and there will be consequential deal activity as a result of this significant industry merger.

II. Chemicals 

Geopolitical tensions, driven by tariff / trade uncertainty, is dampening M&A activity in the chemicals sector, with deal activity at its lowest level in three years.

 Highlights:

• Due to the current macroeconomic environment, analysts are urging chemical companies to review supply chains and the possible business impact of proposed regulations or trade wars.
• Specialty Chemicals led both deal value and volume activity this quarter, boosted by the Parker Hannifin acquisition of LORD Corp.
• Even with the current uncertainty, analysts still expect high deal multiples to continue, with Specialty Chemicals offsetting lower deal activity in other categories. The high availability of cash will also fuel strong deal activity.

III. Construction and Engineering

Construction and Engineering has solid underlying fundamentals, but M&A activity continues to be dampened by concerns over ongoing trade disputes and the potential for an impact on the economy.

Highlights:

• Construction starts grew in the South, but declined elsewhere across the country. The imposition of tariffs has increased materials costs.
• However, a recent reduction in interest rates and consequential decrease in mortgage/lending rates could help the industry bounce back.
• Construction and Construction Material Manufacturing were the two sub-sectors leading deal value activity this quarter. Civil Engineering and Construction led deal volume activity.
• The industry continues to experience labor shortages and the resulting backlog.
• Construction start-ups focused on automation are attractive targets.
• An easing in trade wars tensions would buoy transaction activity, but deepening disputes would likely mute what otherwise would be an active time for construction and engineering deal making.

IV. Energy: Oil and Gas

 M&A activity in the oil and gas market rebounded very strongly in Q2 after a quiet first quarter, with three mega-deals boosting deal value growth.

Highlights:

• Increased volatility in energy prices in Q3 and concern over future pricing will impact M&A activity.
• Industry participants will also be watching US monetary policy, activity in the Strait of Hormuz and the upcoming hurricane season to determine if we have a repeat of Q1 or Q2 in the third quarter.
• A further cut in interest rates by the Federal Reserve could help M&A activity in the remainder of 2019.
• In sub-sectors, upstream deals accounted for 45 % of total volume and 62% of total value, finishing ahead of Midstream with 41% of volume and 31% of value.
• Occidental Petroleum acquiring Anadarko Petroleum was the most significant transaction of an oil producer not only this quarter, but in the last four years.

V. Healthcare

Healthcare M&A activity may be down from last year, but both value and volume are relatively strong. Industry participants continue to negotiate regulatory uncertainty, high levels of capital, continuing vertical integration deals, and high costs.

 Highlights:

• The absence of any mega-deals this quarter explains the drop in deal value; however, non-megadeal value growth was up 13% over Q1 and nearly flat over the prior year.
• Q2 deal volume bounced back from the first quarter as anticipated, being the eighth quarter in a row where deal volume surpassed 250 deals.
• Long-Term care continues its long-term deal volume trend, coming in second in deal value to the Other Services category, boosted by the UnitedHealth Group-Equian and Catalent-Paragon Bioservices deals.

VI. Industrial Manufacturing  

 The second quarter of 2019 was strong for Industrial Manufacturing mergers and acquisitions. Year-over-year value and volume may be down, but the second quarter shows promising uptick in both value and volume.

 Highlights:

• The future looks bright for continued M&A activity: Record levels of cash, the motivation to invest in digitized supply chain efficiencies, and a divided Congress unlikely to pass regulatory changes. However, analysts are cautious about a possible decrease in GDP and economic slowdown.
• In sub-sector performance, Industrial Machinery accounted for 61% of deal value and 39% of deal volume. Electrical Equipment followed with 17% and 25% of deal value and volume, respectively.
• Note: The Gardner Denver Holdings and Ingersoll-Rand accounted for almost a third of disclosed deal value this quarter.

VII. Transportation, Logistics, Distribution

Transportation and Logistics deal value increased over Q1, however volumes remain relatively flat.

 Highlights:

• In sub-sector performance, Logistics led deal value and volume with 23% and 24% respectively.
• Financial investors surged in acquisition volume this quarter, 73% of transportation deal value.
• Each sub-sector contributed to deal activity growth, with the exception of Rail, which was slow in Q2. Deal activity across the industry indicates many investors still identify opportunities within the sector.
• Inevitably, transportation will be impacted by ongoing tariff wars and the impact on trade, with declining imports and a 48 week low in shipping among China and the US.

How Can ClearRidge Help You Sell Your Business?

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

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.