Global political tumult is likely to dampen businesses' appetite for megadeals in 2019, according to JPMorgan Chase's global co-head for mergers and acquisitions, Hernan Cristerna.
On the heels of a year that has been one of the best for dealmakers since 2007, concerns about a US-China trade war, Brexit and growing nationalism are likely to trigger a slowdown in transactions that are bigger than $10bn (€8.78bn), Cristerna said.
His bank ranks third globally in advising on 2018's takeovers, with its scoresheet including the biggest deal of the year, Takeda Pharmaceutical's $62bn (€54.45bn) acquisition of Shire.
"What CEOs and companies are cautious of is engaging in a very large transaction that might take a very long time to get approved, if it's approved at all," the banker said.
"I know what I'm buying today, but I just don't know what I'm buying two years from now."
Still, the banker is "cautiously optimistic" about the dealmaking environment going into 2019. This year is poised to be the second-best ever for M&A, despite a deceleration in transactions in the second half and especially in the fourth quarter, he said.
The lion's share of takeovers were in the range of $1bn (€878m) to $5bn (€4.39bn), according to the banker, and there's going to be a "significant flow" of deals in that bracket next year as business titans are "playing offence as well as defence."
Companies that are likely to strike deals are those that want to reinvent themselves or disrupt operations, and many businesses will seek to tap "what's still cheap sources of funding," he said yesterday.
Other firms are looking to simplify their portfolios to focus on their strengths or tap synergies to prepare for a rainy day, according to Cristerna. "It's going to continue to be a very active market, but what's going to hurt and what we're going to see less of is the $10bn deals," he said.
On the bigger transactions, chief executives are concerned about the "very complicated regulatory environment, whether it's US-China, whether it's Brexit, whether it's industrial policy, a somewhat nationalistic definition of strategic industries, deals taking a long time to get approved," the banker said.
"So that's where there is caution in the market."