Corporate Financing Analysis - Cash To Continue Dominating 2018 M&A Deal Funding - 08 JAN 2018


Cash has become the go-to avenue for deal financing for inorganic growth globally and we expect this hierarchy to remain in place in 2018. This is not to say that the chosen method of payment for funding M&A deals is not immune to external headwinds; rather, we believe that acquirers have become accustom to a dependence on it and that it is perhaps not as volatile as other typical financing avenues, such as equities or debt for completing takeover deals.

In 2017, a year when record low interest rates were ongoing, there was only going to be one winner in the method of payment rankings: cash - which is as we predicted at the mid-point in the year ( see ' Cash To Remain Preferred Method Of Deal Financing In H217 ' , July 12 2017). According to data from Zephyr, a Bureau van Dijk product, the numbers for the US market show that there were 14,492 M&A deals completed in cash across the course of 2017. This compares favourably with just 386 transactions financed using stock and 218 using debt as the method of payment. Looking into our crystal ball for the year ahead we expect more of the same. This time round, however, we see cash gaining a lower market share of deal financing than it did last year, leaving room for other avenues, such as bonds, to play a more significant role in funding deals. Ultimately with deal financing becoming more expensive once more (both by cash and other means) we are expecting to see a steady decline in announced dealmaking more broadly in 2018.

2017: The Story Of Rate Hike Delays

Cash Is Cheap
2017 US M&A Deal Method Of Payment By Deal Volume
Source: BMI, Zephyr (a Bureau van Dijk product)

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