The next trade-war casualty may be the M&A market

ALREADY, one megadeal is at risk because of the US-China trade spat: a massive order by Chinese airlines for Boeing Co planes that may be worth more than US$30 billion. The deal, important to both sides, may take a precarious turn because of escalating tensions between their countries.

But the Boeing matter draws attention to an even a bigger risk: namely, that the trade war could complicate giant M&A deals, the kind that have kept the market together even as other types of dealmaking have slowed.

This year, there have been an unusually high number of mergers and acquisitions in the US$20-billion-and-up range, such as Bristol-Myers Squibb Co's takeover of Celgene Corp and last week's announced deal between Global Payments Inc and Total System Services Inc. In fact, the average M&A transaction size so far in 2019 is a record.

The trend is even more pronounced when looking at combinations involving only US companies. Despite a steady flow of large mergers, global dealmaking is down 16 per cent overall.

That's because transactions in the US$1 billion to US$5 billion range - typically considered the bread and butter of the M&A market - have slowed significantly in every region.

Boeing's possible deal with the Chinese airlines doesn't fall under M&A, but it shows corporate decision-making being influenced by geopolitical conflict.

If something on the scale of a US$30 billion airplane order were to get derailed, so, too, could megamergers highly sensitive to things like CEO confidence, open markets and cross-border supply chains. And without these big transactions, the M&A market might really dry up.

"If the big deals start to taper off and you don't get a pick-up in the sweet spot (the US$1 billion to US$5 billion deals), then I think the second half of the year could be more problematic," Mark Shafir, co-head of global M&A at Citigroup Inc, said at the Bloomberg Invest New York conference on Wednesday.

Confidence issue

As companies study their supply chains, "it's starting to become a confidence issue", he said.

Many are dependent on parts from China and Mexico or sales in those nations. One year after Donald Trump was elected president, I wrote about how acquirers were spending a lot less money than usual on American companies, perhaps on account of the White House's more isolationist views making the US a slightly less attractive place to make acquisitions.

The trade war, along with the larger policing role that the Committee on Foreign Investment in the US (known as CFIUS) seems to be playing, could again stymie cross-border merger considerations.

Whether it's the sale of a Boeing jetliner or a tech takeover, trade tensions spell bad news for megadeals. BLOOMBERG

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