Will a deal-making administration be good for deals?

January 23, 2017

By Brian Levy, PwC Deals Industries Leader

The waiting is over, now the wondering begins. As a new United States government gets down to business, how much campaign rhetoric and how many tweets will become policy? This is the first administration in a long time that is heavily focused on the US growth agenda – it’s also built its reputation on the love of the deal. But what effect will it have on corporate deals?

Dislike for regulation signals a deal-friendly environment. But much talked-about measures, from import tariffs and redrawn trade relations, to immigration curbs, lower corporate and individual income taxes, and job-creating infrastructure programs could speed up and slow down the pace of deals.

For instance, tax cuts and higher spending on defense, bridges and highways might boost deals given expectations for topline growth, potentially increasing corporate values. However, valuations today are rich, given the expectation of higher growth. But this could drive up the deficit to fund new programs and also drive up interest rates, potentially limiting private equity and corporate funding. However, we would expect normal interest rate increases to be measured, therefore not hurting the appetite for deals. A new administration with limited political experience could potentially bring volatility, which creates uncertainty and risk – a pause-button for deals.

A proposed tax break for cash that companies bring back to the US from overseas could provide fuel for US buyers. That is if companies use a chunk of the windfall for strategic deals to position themselves to capitalize on or keep pace with rapid technology-driven change versus shareholder buybacks and organic growth investments. At the same time the corresponding outflow of funds from international territories risks slowing already fragile growth in international economies.

What’s good for America might not suit the rest of the world. The new administration’s policies favor the US and potentially create uncertainty in certain overseas markets. Plus, potentially chilly trade relations and regulatory scrutiny of overseas money in domestic business could make the Chinese, for instance, think twice about investing abundant surplus cash in US deals, despite a recent buying spree.

A hot start follows a lively finish

For all the uncertainty ahead, business is brisk right now. The first nine days of January saw $35.7B of M&A announced, according to S&P– the best start to a year since 2010 and more than twice as good as the same period last year1.

We’re picking up where 2016 left off. The year’s last month-and-a-half pushed US deal volumes past 2015 and 2014 levels, though values were still down, at around $1.7B compared to $2.4B in 2015 and $2.2B the year before. Global deals for Q4 reached $997B, comfortably outdoing Q3’s $766B but still down on Q4 2015. And the late rally was too little to stop the $3.6T for the year being short of the $4.7T of deals done in 2015.2

Pent-up demand is a big factor behind the Q4 US bounce and the hot start to 2017. And for now, strategic necessity will likely remain a key driver of deals, irrespective of government policy. How long that continues will depend on how fast, and how dramatically, policy changes. Based on the signals so far, the coming months and years could play out very differently, depending on which sector you follow.

To show what I mean, let’s look at two industries that demonstrate a dichotomy in prospects and cross-industry convergence: technology and automotive.

Non-tech needs tech

Technology is mainstream business for ‘traditional’ non-tech sectors like automotive and industrial products. Whether it’s driverless cars or smart refrigerators, the Internet of Things and technologies like artificial intelligence are becoming an essential part of corporate fabric. The shift is happening so fast that instead of patiently growing their tech capability, corporates increasingly go out and buy it. In 2016, they bought a record $125B worth. Five years ago, it was just $20B3. As we’ve seen, the urge to disrupt rather than be disrupted saw non-tech buyers snap up 682 companies, compared to the 655 bought by other tech companies, according to Bloomberg4. That contrasts with the sector’s own big players, who did very few major deals.

As boards and executives venture outside their comfort zones, the risk profile of deals increases, particularly given high technology company valuations. The right strategic assessment and robust due diligence are even more important in these scenarios. The trend seems self-driving, but government policy could still stimulate tech deals. A volatile political climate might convince potential stock market darlings – privately owned ‘unicorns’ worth $1B or more – that M&A, not IPO, is their best bet.

The tech sector’s reliance on overseas brain power may also boost deals. If immigration curbs restrict the supply of foreign engineers, it could boost ‘acquihire’ deals as companies buy know-how rather than hire it.

Auto sector grinds its gears

The value of automotive deals in 2016 was down 34% versus 20155 and we expect car makers will be watching keenly to see whether the government does actually slap a 35% tax on goods made abroad. Major players servicing the US market from plants in Mexico will likely be nervous about the potential hike in costs and drain on profits and demand. But they’re as likely to respond by looking for even cheaper labor as manufacturing returns to the US. In any case, deals may not be a priority.

Also, if measures like fuel economy standards tumble down the government’s to-do list, it could again hobble deal making. Freed from their mileage targets, car makers might feel less need to acquire the powertrain and chassis suppliers or electronics companies that could help them build lightweight, alternative-fuel or zero-emission electric cars. These are the kind of auto sector deals that dominated in 2016. Irrespective, the convergence of technology into this sector is becoming increasingly important and strategic deals in the auto-tech space may continue unencumbered.

Other areas to watch

Cutting regulation could speed up deals in many sectors, notably pharmaceuticals, where established players are always looking for bright new biotech prospects and their differentiating technologies.

Global pharma deal value fell year-on-year by 31% in 20166. But we could see that trend change this year. Meanwhile health services’ US deal value fell by nearly 60% in 2016, thanks to a dearth of megadeals7. It now faces early uncertainty as payers and providers await the likely repeal and possible replacement of the Affordable Care Act. The big players in the health industry are anxiously awaiting the outcome of potentially new regulations, however we would expect health-tech deals to remain unabated.

Sectors shaping up well for 2017 include aerospace and defense. Although 2016 global deal value and volume were down 43% and 27% respectively on 2015, Q4 value was up more than 250%8. That pace could continue if the US government makes good on promises to ramp up spending.

Engineering and construction, meanwhile, is plagued by worldwide uncertainty, with global deal value down 4.5% year-on-year in 20169. Government infrastructure plans could put a spring back in the sector’s step.

Power and utilities dealmakers will be watching for policy signals, especially on the environment and interest rates, as they weigh up the prospects for infrastructure and generation assets.

Of course, this is just a selection of the year’s highlights. We’ll be watching all sectors closely through what’s bound to be an eventful time.

For more detail on your industry’s unique Deals Insights for this #PwCDeals Day, go to pwc.com/us/deals-industries for all our year-end reports.

Industry deal highlights

Aerospace and Defense

“After strong volume in Q4 2016, we are optimistic in 2017 that deal activity will likely recover and return to prior year levels as less uncertainty is expected. We expect that deal making to become more strategic focused rather than opportunistic in nature.”

—Bob Long, US Aerospace and Defense Deals Leader

Asset and wealth management

Asset and wealth management sector is going through a major transition which will likely change the way retail investors are being advised and their savings are managed by the industry. This transition is expected to fuel M&A activity in the mutual fund and wealth management sectors over the next two years.”

—Sam Yildirim, US Asset Management M&A Leader


“We no longer see consolidation driving M&A activity, today M&A activity is about expansion into new technologies, new services and new business models.”

— Jeff Zaleski, US Automotive Deals Leader

Banking and capital markets

“Uncertainty was a theme that hampered the deals market during 2016, with deal levels in the banking sector at their lowest level since the financial crisis. With a potential for a relaxed regulatory environment under the Trump administration and Republican-led Congress and proposed interest rate hikes by the Fed, we’re hopeful this will provide a much-needed kick-start to banking deals in 2017.”

— Dennis Trunfio, US Banking & Capital Markets Deals Leader


“We have witnessed several cross-border industry-altering megadeals that will likely change the landscape of the Fertilizers and Agricultural Chemicals and Industrial Gases subsectors significantly. While we do not expect a similar level of megadeals, we anticipate chemical deal activity to remain strong in the first half of 2017.”

—Craig Kocak, US Chemicals Deals Leader

Engineering and construction

“Q4 M&A activity continued a trend seen all year: strength in small to medium-sized deals (reflected in a 23% increase in deal volume) with relatively flat (4% decrease) value. Despite a strong US economy, there remain a number of unanswered questions around the globe, which will likely have far-reaching implications on how 2017 trends.”

—Colin McIntyre, US Engineering and Construction Deals Leader

Entertainment, media and communications

“The transformative deals that continue to resonate throughout the EMC sector are beginning to bifurcate the haves and have-nots, leaving certain players re-evaluating their strategy or existing portfolios and how they deploy capital in the market.”

—Bart Spiegel, Partner, Entertainment, Media & Communications Deals

Health services

“Health Services M&A activity has been strong during the past several years with continued momentum being exhibited heading into 2017 across many sectors. However, attention should be paid to the evolution and implementation of the policies of the incoming administration as well as the outcome of the government’s review of certain large mergers.”

— Thad Kresho, US Health Services Deals Leader

Industrial manufacturing

“In 2017, Global Industrial Manufacturing M&A will likely be driven by market participants’ desire to expand geographic, product, and technological reach to differentiate themselves in the competitive marketplace as was done with the Johnson Controls and Tyco merger in 2016.”

—Paul Elie, US Industrial Manufacturing Deals Leader


“The Metals deals market showed signs of life in the final quarter of 2016. Overall, the value and number of deals outpaced the prior quarter and Q4 last year. With that said, on an annual basis, Metals still saw lower deal volume and values when compared to 2015, and much of the deals activity was concentrated in China.”

—Brian Kelly, US Metals Deals Leader

Oil and gas

“Despite a timid start in the first quarter, 2016 O&G  M&A ended on a high note, mimicking increased optimism for the overall oil & gas sector. We expect this optimism, and corresponding increase in risk tolerance, to carry over into 2017 resulting in strong M&A activity as well an acceleration of IPO’s.”

— Doug Meier, US Oil & Gas Sector Deals Leader

Pharma and life sciences

“Some of the larger industry players continue to seek out new entrants into PLS that can provide enabling technologies or other tools that can differentiate and improve their capabilities.”

— Dimitri Drone, US Pharma & Life Sciences Deals Leader

Power and utilities

“As we look forward to 2017, we expect infrastructure and generation asset deals to continue to be a theme, with deal makers keeping a close eye on rising interest rates, potential tax reform, and environmental policies.”

— Jeremy Fago, PwC US Power & Utilities Deals Leader

Retail and consumer

“While the new presidential administration’s impact on trade and regulatory change is uncertain, factors such as innovation, competition, cross-border deal interest and the availability of cash reserves bode well for deal activity in 2017.”

— Dominic Ricketts, US Retail and Consumer Deals Leader

Food and beverage accounted for the highest share in deal volume (23%) and value (29%) in 2016 as changing consumer preferences and an increased focus on health and wellness fuel activity. The sub-sector was driven by the Danone SA / The WhiteWave Foods Co. deal.


“2016 saw record-breaking Tech deal activity driven by demand from Tech and non-digital companies for cloud, AI, IoT and cyber technologies.”

—Todson Page, US Technology Deals Leader

Transportation and logistics

“Total T&L deal volume and value declined in 2016, likely impacted by uncertainties around the US elections and Brexit, but subsector dynamics could drive an M&A uptick in 2017.”

—Darach Chapman, US Transportation and Logistics Deals Leader



Data and research sources:

1US dealmaking kicks off 2017 with biggest start in 7 years
2Thomson Reuters with PwC analysis. Data through Dec. 16, 2016.
3For Non-Tech Companies, if You Can’t Build It, Buy a Start-Up
4For Non-Tech Companies, if You Can’t Build It, Buy a Start-Up
5PwC Global Automotive M&A Deals Insights Year-end 2016
6PwC Global Pharma & Life Sciences Deals Insights Year-end 2016
7PwC US Health Services Deals Insights Year-end 2016
8PwC Global Aerospace and Defense M&A Deals Insights Q4 2016
9PwC Global Engineering and Construction M&A Deals Insights Q4 2016


Colin Wittmer

Deals Leader, PwC US Email

Curt Moldenhauer

Deals Solutions Leader, PwC US Tel: +1 (408) 817 5726 Email: curt.moldenhauer@pwc.com