By Liana B. Baker and Svea Herbst-Bayliss
NEWORLEANS (Reuters) – Global economic uncertainty will lead to a slowdown in corporate mergers and acquisitions (M&A) in 2019, a top Citigroup Inc investment banker said on Thursday.
“We are heading into 2019 with substantially less momentum than in 2018,” Mark Shafir, Citigroup’s global co-head of mergers and acquisitions, told the Tulane Corporate Law Institute conference in New Orleans.
“The economic environment remains uncertain, trade and other tensions unnerve geopolitical relationships, and heightened volatility drives wild swings in the equity markets,” he said.
Shafir said he expects M&A volumes to drop roughly 10 percent this year, and if certain risk factors worsen, they could drop as much as 20 percent. M&A volumes exceeded $4 trillion (3 trillion pounds) in 2018, up 20 percent year-over-year, making it the third best year for deals on record, Shafir added.
Some big deals announced this year, including drug maker Bristol-Myers Squibb Co’s $74 billion acquisition of Celgene Corp, have provided some encouragement that M&A volumes will be healthy even if they drop, Shafir said.
He added the current M&A environment rewards “CEOs and boardrooms who make strategically sound, proactive rather than defensive M&A decisions.”
Shafir said he remains cautiously optimistic that pressure from activist hedge funds pushing for spin-offs, as well as private equity firms looking for places to park their capital in leverage buyouts, will help keep up the dealmaking pace.
Early signs of a potential recession in the bond market do not give Shafir much comfort, however. In December, the U.S. treasury yield curve showed evidence of inverting for the first time in more than a decade.
“History shows M&A activity meaningfully slows nine to 13 months following an inversion,” Shafir said.
(Reporting by Liana B. Baker and Svea Herbst in New Orleans; additional reporting by Jessica DiNapoli; Editing by Sonya Hepinstall)