2018: the year of the megadeal
2018 has been an active year for M&A and for large cap deals in particular. We'll finish the year a little north of $4 trillion in volume, up about 20% versus last year and the third best year ever. We've actually seen 17% fewer transactions in 2018 than we had in the prior year of 2017. But the number of billion dollar transactions is up by over 25%, and we've seen more than twice as many transactions in the megacap size, over $25 billion in size, than we had in 2017.
The surge in megadeals occurred mostly in the early part of 2018 in the wake of getting clarity on tax reform at the end of 2017. 12 of the 15 largest deals of 2018 actually occurred in the first five months of the year, and, as a result, volumes in the first five months were up by more than 60% year over year, whereas volumes in the remainder of the year ran roughly flat versus the prior year.
2019: Opportunities in cross-sector and mid-cap deals
Looking out into 2019, it'll be difficult to match the number of megadeals that we saw in 2018, but we're optimistic that the market will broaden, and we'll see more transactions in the mid-cap size.
In our view, the biggest factor leading to the decline in the number of transactions in 2018 was the perception of valuations being overly rich. But the recent equity market adjustments should help in that regard.
One dynamic that we expect to continue to drive M&A in 2019 is the ongoing impact of disruptive technologies across industries, whether it be industrials, retail, energy, power, healthcare. Almost 25% of technology M&A involved a counterparty to the tech company that was outside the tech sector. We think this trend towards crossover deals will continue into 2019 as companies across sectors deal with the evolving technological landscapes within their industries.
2019: Positive outlook, but not without risks
In 2019, we expect M&A to remain active and to continue at a pace comparable to what we've seen in the second half of this year. As we begin the year, however, given the elevated levels that we started with in early 2018, the year on the year comparisons will likely be negative, but those comparisons should moderate as the year progresses.
The single biggest risk to the M&A market is a possible recession, and there's a lot of uncertainty today about when the current economic expansion will end. M&A is fundamentally correlated to GDP growth, and so any material slowdown would have an impact.
Companies have always had to assess the traditional risks of antitrust approvals and national security concerns. What companies aren't accustomed to dealing with, and therefore find much harder to assess, is the encroachment of political issues into the regulatory approval process.
More generally, given that uncertainty is often the biggest hindrance to M&A, ongoing geopolitical issues, whether it be Brexit, tariffs or other concerns, could present a hindrance to certain types of transactions.
Notwithstanding some of our macro concerns, we believe that the positive dynamics of continued economic growth in most major economies around the world, interest rates that, while slightly higher, remain low by historical standards, and a broad desire by corporate clients to address topline growth challenges will keep M&A active throughout 2019.