After a busy few days for M&A activity that included AT&T's (T) - Get AT&T Inc. Report record-breaking acquisition of Time Warner (TWX) , B/E Aerospace's (BEAV) $8.4 billion acquisition by Rockwell Collins (COL) and TD Ameritrade's (AMTD) - Get TD Ameritrade Holding Corporation Report $4 billion tie-up with Scottrade, we are reminded once again of the importance of investment advisers and legal minds that work on these deals.
The Deal, a sister publication of TheStreet, is out with its Q3 M&A league tables, a ranking of the top investment banks and law firms in the M&A space. And though the results do not include this weekend's tie-ups, the rankings exemplify a 2016 that has been dotted with mega-deals but that still falls well below the high-water marks set in 2015.
High valuations, geo-political uncertainties and even a fear of zealous regulators kept the total dollar volume of third quarter M&A below last year's record figure.
And the exceptional deal proves the rule: Bayer's $66 billion September agreement for its giant agribusiness rival Monsanto (MON) would be the biggest-ever cash acquisition.
The most recent three months saw $495.5 million in global dollar volume, according to data from The Deal, down from $861.7 million in Q3 of 2015, a 42.4% decline. The figures don't include the Bayer acquisition, however, since negotiations started earlier in the year.
It seems clear that 2016 will miss 2017's blistering dealmaking pace (though if this weekend's events are any indication that could change) with a number of issues making strategic and financial investors alike hesitant to pull the trigger. The turbulent presidential race is playing a role but it's more Brexit, what the Fed plans to do in December and stock markets hovering near record highs.
"M&A volumes have historically been cyclical. We had a very long upcycle. It's not a great surprise that dollar volumes would moderate," said Joseph Frumkin, the managing partner of Sullivan & Cromwell's Mergers & Acquisitions group. "There will be a small number of deals that will be delayed pending the outcome of the election."
Sullivan and Cromwell tied for 9th among law firms in the Deal's Q3 M&A League Tables, advising on 29 agreements over $100 million with at least one U.S. participant.
Frumkin was part of the Sullivan team that advised Canadian pipeline operator Enbridge (ENB) - Get Enbridge Inc. Report in its $28 billion all-stock agreement for Houston's Spectra Energy (SE) - Get Sea Ltd. (Singapore) Sponsored ADR Class A Report to create the largest North American energy infrastructure company. The deal was announced Sept. 6 and is the third-largest agreement announced in the third quarter and the largest in the energy sector.
The biggest announced agreements in the quarter featured strategic buyers, indicating that executives are afraid of falling behind rivals despite record-setting valuations. Financial investors have moved into the background, failing to find the margin in high prices and shackled by an increase in lending regulations following the 2007 credit crunch.
Deal statistics show strategics outspent private equity and other financial investors by nearly fourfold in Q3.
"It's been more challenging for PE firms to have as much leveraging as they like to have," Frumkin said.
M&A attorneys agree that the election will play a minor role in the fourth quarter—most see Hillary Clinton as the likely winner and many as the preferred candidate since her policies are more clear and her temperament less capricious. But an expected rate rise by the Federal Reserve in December is giving many dealmakers pause as financing rates are already calculating in an interest rate increase that could also never materialize.
And Brexit has resurfaced as a possible hindrance because of the uncertainty it carries, according to Ed Batts, the global co-head of Orrick, Herrington & Sutcliffe's M&A and private equity group, which tied for 22nd place in the Deal tables, advising on 11 Q3 deals.
"Brexit is slowing some people down," Batts said. "The Chinese continue to be active."
Indeed, according to Dealogic, Chinese companies bought $173.9 billion worth of assets in the first nine months of the year, an increase of 68% over the same period in 2015.
Batts was part of the Orrick team that advised AVG Technologies, of Amsterdam, in its $1.3 billion sale to Prague-based Avast Software announced July 7. The deal was just one of many that put technology atop dealmaking in 2016, replacing healthcare. In the quarter's biggest tech deal, Japanese cellular provider SoftBank (TYO) - Get Direxion Daily 7-10 Year Treasury Bear 3x Shares Report agreed to buy U.K. semiconductor designer ARM Holdings for £24.3 billion ($29.8 billion) July 18.
Technology was also the showground for the most high-profile regulatory action of the third quarter after Lam Research (LRCX) - Get Lam Research Corporation (LRCX) Report and KLA-Tencor (KLAC) - Get KLA Corporation (KLAC) Report in August said regulators were balking at their $10.6 billion merger. The duo officially cancelled the marriage Oct. 6, raising eyebrows among tech attorneys who now see watchdogs safeguarding not just markets, but also innovation.
Without question the last couple of years, we've definitely seen more anti-trust scrutiny," said Latham & Watkins partner David Allinson, who is global co-chair of the firm's Mergers & Acquisitions practice. "However, for deals that clearly present no antitrust issues, the FTC and DOJ are being really quick with approving those deals."
Latham was tied for No. 2 on the Deal's league tables, advising on 74 agreements in the third quarter. Allinson was part of the Latham teamed that advised newly formed joint venture of Blackstone (BX) - Get Blackstone Group Inc. Class A Report and ArcLight Capital Partners on its $2.17 billion acquisition of four power plants from American Electric Power (AEP) - Get American Electric Power Company, Inc. Report , which was announced Sept. 14.
Allinson said he's sensed an uptick in deal activity starting mid-summer and said strong interest in debt markets has helped companies finance larger deals, a good thing considering the stratospheric equity markets. He also said Nov. 8 is also likely playing a role.
"There could be this feeling of, 'Let's get some stuff done before the election,'" he said.
Editor's note: This article was originally published by The Deal, a sister publication of TheStreet that offers sophisticated insight and analysis on all types of deals, from inception to integration, on Oct. 14. Click here for a free trial.