M&A Outlook for Fall 2018 and Q2 Transaction Report

We are in the third quarter of 2018 and deal data is now available through the end of the second quarter. In this report, we review our region’s most active industry sectors and give an outlook for 2018.

M&A Transaction Report by Sector


Although M&A volumes dipped during Q2, analysts expect deal activity to bounce back as companies look for strategic growth opportunities and synergies.

·        Analysts are optimistic about commercial aviation transactions due to industry growth during 2018.

·        An increase of orders and aircraft parts may cause maintenance, repair and overhaul companies to be potential deal targets.

·        Government defense spending will likely lead to activity for companies with space systems, cybersecurity, analytic, or robotic technologies.

·        The Supporting Services category contributed a majority of deal value due to Boeing’s acquisition of KLX, a provider of aviation parts and services.



Despite concerns over US imposed tariffs and Chinese countermeasures, geopolitical tensions and rising interest rates, analysts still have reasons for optimism, with deal values rising.

·        Regulatory required divestures on pending megadeals, robust cash flow from tax reform, and an anticipated correction in oil prices all combine for a strong tailwind for M&A activity.

·        With the high demand for adhesives and additives, Specialty Chemicals continues to lead the category with 76% of deal value and 46% of deal volume.

·        Commodity Chemicals bounced back from a slow Q1 to account for 31% of volume and 16% of value.


Construction and Engineering

Despite positive trends with tax reform and a strong housing market, Construction and Engineering deal activity remains muted.

·        While uncertain trade policies have increased building material prices and hampered deal activity, strong housing demand and a new infrastructure bill could offset these headwinds.

·        The Construction Materials Manufacturing category accounted for five of the top ten largest deals. Construction and Engineering had the largest deal volume.

·        Vertical integration deals may result from companies seeking to expand capabilities with increasing project size and complexity. Activity could also result from companies seeking to combat skilled labor shortages through consolidation, strategically gaining more talent.


Energy: Oil and Gas

Rather than engaging in deal activity this quarter, many oil and gas companies focused on investor returns and working within existing cash flows.

·        While experiencing its highest Q2 deal value in history, the number of completed acquisitions was down due to trade conflicts and geopolitical tensions.

·        Despite the dip in deal volume, the pace of pre-deal activity and high value of Q2 deals give analysts cause to believe deal volume will return to higher levels in Q3.

·        Midstream and Downstream sub-sectors led deal values this quarter with the Marathon acquisition of Andeavor in Downstream and several MLP to C-Corp conversion transactions in Midstream as a result of tax reform.



Deal activity remains robust as the healthcare industry deals with regulation uncertainty, consequences of tax reform on capital, and pressures to rethink corporate strategies around increased competition and higher drug and labor costs.

·        The category continued its trend of over 200 deals for 15 consecutive quarters. Due to exceptional megadeals in the previous quarter, as well as in Q2 of the previous year, deal values dropped this quarter.

·        Healthcare had its third largest deal since 2016 with the announcement of KKR’s acquisition of Envision Healthcare Corporation.

·        The Physician Medical Groups’ subsector led deal value, while Long-term Care accounted for most of the deal volume.


Industrial Manufacturing

Quarter over quarter, the value of acquisitions was up by 68%, leading cross-sector M&A activity.

·        A strong global economy, a tailwind of US tax reform, and large companies wanting to restructure non-core businesses has given Industrial Manufacturing enough fuel to overcome an uncertainty from looming trade wars.

·        Analysts anticipate a rise in megadeals during 2018 and the Westinghouse Air Brake and General Electric Transportation deal could be the beginning of the fulfillment of that prediction.

·        Industrial Machinery and Electronic/Electrical Equipment were the top two categories in both deal value and volume. Digitization and innovation continues to push M&A activity.


Transportation, Logistics, and Distribution

Trade policies and tariffs depressed both deal volume and value this quarter.

·        M&A activity was impacted by acquirers sitting on the sidelines, as they assess pending regulatory risks, tax reform, and changing trade policies.

·        In an effort to cut costs and increase efficiency, the Shipping category led deal value. Shipping and Logistics together made up more than half of deal volume.

·        The Trucking sector showed increased activity this quarter with total deal value 18% above the one-year average.


Sources: This report has been compiled from reports and research including federal data, independent analysis, Kiplinger, PricewaterhouseCoopers, Janes, Deloitte, Bain and Company, Oil and Gas 360, SDR Ventures, Baker Hughes, McLean Group, PCE Companies, Healthcare M&A information Source, Levin Associates, Business Wire, National Association of Manufacturers, Road Scholar Transport and other sources cited in the text.

Note: Unless otherwise stated, all deal data is for the United States only. 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 largest corporations is also a good barometer for M&A activity among midsized companies in the same industry.