Chinese buying of US firms slows abruptly as global deal making falls for first time since 2010

  • A report published Thursday by media firm Mergermarket showed a decline in global M&A deals in 2018.
  • It was the first year since 2010 that the number of deals made decreased, as Chinese bids for U.S. firms fell by almost 95 percent.
  • While the number of deals fell, the total value of deals completed rose from the previous year to $3.5 trillion.
Shannon Fagan | DigitalVision | Getty Images

The number of global merger and acquisition (M&A) deals declined for the first time since 2010 last year amid escalating trade tensions and political instability.

Geopolitical tensions took their toll as Chinese purchases of U.S. firms plummeted by 94.6 percent, falling to a value of $3 billion from a record $55.3 billion in 2016, according to research released by Mergermarket on Thursday.

China instead turned its attention to Europe, the data suggested, as Chinese M&A bids in the region soared by 81.7 percent to $60.4 billion.

Elsewhere, the number of cross-border M&A deals fell by 6.6 percent. After steadily rising for close to a decade, the total number of deals struck globally fell to 19,232 from 19,974.

While the number of deals fell, individual deals rose in value, with the average deal size reaching its second highest value on record at $385 million and total M&A value rising 11.5 percent to $3.53 trillion.

Jonathan Klonowski, Mergermarket's EMEA research editor, told CNBC's "Squawk Box Europe" on Wednesday that he expected geopolitical tensions to continue impacting the number of deals finalized in 2019.

"If you look at the protectionist activities of governments, they are going to make these large deals harder to complete," he said. "The majority of (the spending) increase we saw this year was domestic activity rather than cross-border activity, so that defensive domestic consolidation is possibly what we'll see more of in the coming year."

Sectors to watch

Energy, mining and utilities was the top industry for M&A activity in terms of cashflow last year. The sector saw deals worth $673 billion in 2018, its second highest value on record.

Construction also emerged as a sector to watch, reaching peak M&A investment for a decade at $116.5 billion.

Meanwhile, defense set new M&A records with deals totalling $28.8 billion, driven by increasing competition for government contracts.

While the number of deals fell in almost every sector, agriculture saw record 219 M&A transactions in 2018, boosted by the emerging North American cannabis industry.

2018's biggest deals

Throughout last year, 36 "megadeals" – M&As worth more than $10 billion – were announced, according to the data.

Takeda Pharmaceutical Company's takeover of U.S. biotech firm Shire led those deals with a value of $79.7 billion, according to the report.

Cigna Corporation's $67.6 billion purchase of Express Scripts was the year's second largest deal, while T-Mobile's merger with Sprint Corporation came in third at $60.8 billion, the research said.