This guest post is by Jaya Gupta, Head of India Desk, Corporate at Allen & Overy LLP
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In 2019, global M&A activity switched down a gear although it was still the third-strongest year in a decade in terms of value and transaction volume.

With macroeconomic issues such as continuing trade wars between the US and China, tensions in the Middle East and, to some extent, Brexit, impacting cross-border activities, many investors resorted to strategic domestic megadeals.

At Allen & Overy, we regularly identify the trends that we are seeing on our deals. Over the past eight years, for example, we have analysed more than 1,250 private M&A deals that we have acted on globally to discern trends relating to deal dynamics, execution risks and share purchase agreement terms. Some of the trends that we saw in 2019 are highlighted in this article. Read more.

Auction activity and competition starting to cool

We saw fewer auctions in 2019 (less than half of our M&A processes were conducted in this way) and less fierce competition between bidders – perhaps an early indication that the overheated private M&A market may be starting to cool. Auctions which were highly competitive usually involved ‘hot’ assets such as data- rich businesses, ‘green’ assets, digital solutions and health products.

Regionally, we saw higher levels of auction activity and competition in North America compared to elsewhere – 86% of our North America deals were auctions and 83% of those were highly competitive throughout. Next in the running order was the UK, where just over half of our transactions were auctions and 62% of those processes were highly competitive.

In Western Europe, CEE and MENA and Australasia, 50% or less of our deals were auctions and less than 40% of those were highly competitive. In Asia, we saw relatively few auctions in 2019 but three-quarters of those were competitive throughout.

Private equity waiting for price expectations to align

With private M&A valuations at a high last year and the economic outlook uncertain, private equity investors appeared to be more cautious about doing deals in the expectation of a market price adjustment in the first few months of 2020.

For some PE houses, acquiring a minority investment has become an alternative strategy given the need to deploy capital in the face of high prices to control the asset.

We also saw some funds looking to reacquire a business that they previously owned having the advantage of already knowing the asset and their relationship with management giving them a head start in the auction process.

A more general trend has been for PE funds to focus on environmental, social and governance (ESG) issues both when carrying out due diligence and, more broadly, when managing their portfolio.

PE sellers seemed happy to test the market but had no hesitation in pulling an auction if a stand-out bid did not materialise, often coming to the view that they could create more value by holding onto the business for the time being.

With public market multiples lower than those in the private M&A market, IPOs did not represent an attractive exit route for PE investors last year. On the other hand, public to private deals were a popular way to deploy unspent funds.