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2. Global risks present overhang
The Trump administration’s protectionist inclinations,
the looming possibility of continuing trade wars
between the US and its biggest trading partners, the
ongoing struggles to define Brexit, the rise of global
debt and, most importantly, the risk of a recession
– all represent a considerable overhang when
considering M&A in 2019.
Against this backdrop, a downturn indealmaking
is inevitable, but predicting its timing is difficult.
Buyers and sellers will likely take these factors
seriously and proceed with caution in coming
months. Yet, the dealmakers that we surveyed have
shown considerable optimism.
The vast majority of respondents predict
moderate growth in the US economy in 2019, and 94
percent say that their company’s appetite for M&A
has increased thanks to the Trump administration’s
tax reforms. If we’re lucky, the downturn won’t
materialize until 2020.
3. More lapsed deals
Despite the anticipated rise in domestic deals, there are
reasons to be wary. Even though economic headwinds
are building, dealmultiples remain stubbornly high and
themargin for error on entry evaluation is narrow. As a
result, buyersmaybe lookingover assets in increasingly
fine detail and stepping away when any wrinkles in a
deal emerge. Don’t be surprised if the number of broken
deals and failed auction processes increase, as buyers
think twiceabout payingupwhenprocesseshit a snag.
4. Inbound deal flow falls further
The last year has been a difficult one for inbound
investors, and things are likely to get worse for foreign
buyers in 2019. Tariffs will make global companies
with international supply chains think twice about
pursuingUS deals, and overseas investors face tougher
scrutiny from regulators who are worried about the
national security risks that could emerge from foreign
ownership.
n
A NEW ERA FOR CFIUS
By Farhad Jalinous
The expansion of CFIUS’s jurisdiction under a new law enacted this past summer has been cited as
one of the reasons for the fall in inbound US M&A activity in 2018. In August of 2018, the president
signed the Foreign Investment Risk Review Modernization Act (FIRRMA) into law. The legislation –
the first statutory overhaul of the CFIUS process since 2007 – expands the committee’s jurisdiction in
response to an evolving national security landscape.
Mandatory declarations in pilot testing
Deals in which foreign investors would have certain non-controlling yet non-passive rights, such as
the right to a board seat or observer, access to material non-public technical information, or certain
substantive decision making rights, in addition to control transactions, are now included in CFIUS’s
jurisdiction. The legislation also captures real estate purchases and leases for properties close to
certain sensitive government locations. FIRRMA also extends the CFIUS review period and grants the
committee the power to run pilot programs, which allow it to test provisions in FIRRMA before new
regulations are issued. One such pilot program has required that short-form declarations to CFIUS
become mandatory for certain technology deals, whereas historically review was at least ostensibly
a voluntary process.
Concerns about Chinese bidders mount
FIRRMA’s expansions will not shift CFIUS’s focus away from deals in the defense sector and those
involving critical technologies and infrastructure, but the changes reflect mounting concerns with
inbound investment from China. In addition to its concerns about critical technologies and critical
infrastructure, CFIUS is increasingly focusing on real estate assets in close proximity to certain
sensitive US government installations and any businesses that have access to large amounts of sensitive
data on US citizens, along with other areas that may be sensitive for national security reasons.