Mega-Merger Boom Hits Snag in Third Quarter

The value of mega-mergers with U.S. targets fell in the third quarter after a higher volume second quarter, according to a Bloomberg Law analysis.

Deals valued at $10 billion or more totaled $87.6 billion in the third quarter, less than half the value of the $189.2 billion in megadeal activity in the previous three-month period, according to Bloomberg data.

The biggest transaction of the third quarter was Energy Transfer Equity LP’s (ETE) $59 billion purchase of Energy Transfer Partners LP (ETP), which is expected to close by the end of the year. ETE already has equity interests in ETP, and the companies say the deal will further align the economic interests of the Energy Transfer family.

The two other big deals of the third quarter are smaller. They are Broadcom Inc.’s $18.1 billion agreement with CA Technologies, and Energy Giant BP plcs $10.5 billion deal with Petrohawk Energy Corp.

By contrast, megadeal activity in the second quarter was boosted by big deals deals like Takeda Pharmaceuticals Co. Ltd.’s $80.2 billion bid for Shire plc and Sprint Corp.’s $26.5 billion proposal to buy T-Mobile US Inc.

Broader M&A activity also dipped from previous quarters. Acquirers proposed 286 deals with U.S. companies valued at $100 million or more during the third quarter, totaling $349.3 billion. As with megadeals, the previous quarter was more active. It included 289 such transactions worth a combined $482 billion.

The third quarter marked a bit of a downturn, but 2018 overall has been a busy year for M&A deals involving U.S. targets. Acquirers announced more than 800 transactions valued at $100 million or more and 13 mega-deals worth at least $10 billion over the last three quarters, according to the Bloomberg data.

The total value of mega-deals from January through the third quarter was just shy of $401 billion, which has already surpassed the 2017 level of $340.8 billion.

Despite the third-quarter dip in mega-merger value, the economic fundamentals for dealmaking remain strong for now, according to Bill Kucera, an M&A lawyer at Mayer Brown LLP in Chicago.

“I personally do not give too much weight to fluctuations in mega-deal volume, particularly over a relatively short period of time such as a quarter,” he told Bloomberg Law. “One or two deals could materially impact the numbers for any given quarter.”

But the outlook is clouded by factors such as rising trade tensions. “I think it certainly could have an impact,” Kucera said. “One of the biggest chillers of dealmaking is uncertainty.”

To contact the reporter on this story: Alexei Alexis in Washington at aalexis@bloomberglaw.com

To contact the editor responsible for this story: Fawn Johnson at fjohnson@bloomberglaw.com