In Dealmaker’s Digest, read the top 10 latest developments in global transactions. We offer insights into M&A activity across industries and borders.
Key Takeaways
- U.S. outbound deal value jumped to over $80 billion in July; the highest monthly value in over 3 years was driven by megadeals in the software and pharmaceutical sectors.
- Aggregate global deal value in July increased another 6% and exceeded $480 billion, while monthly deal count dropped 13%.
- Acquisitions in the software and transportation sectors led U.S. M&A activity in July.
- Earnouts: A market snapshot of this key M&A mechanism.
Global M&A Activity Update
Deal Value Trends
Aggregate global monthly deal value1 in July exceeded $480 billion, an increase of 6% from June and 71% year-over-year. Union Pacific’s $71 billion proposed acquisition of Norfolk Southern drove the highest monthly deal value in more than three years.
Transactions involving strategic buyers in July exceeded $350 billion and continued Q2’s upswing in activity. Strategic buyer deal value was up 8% month-over-month and 139% year-over-year.
Financial, or sponsor, buyer transactions held steady in July, down by just $100 million. Year-over-year, sponsor buyer deal value also held steady (-2%).
Deal Count Trends
Despite the upswing in monthly value, global deal count declined 13% in July and regressed toward the trailing twelve-month average (~2300 deals). Year-over-year, deal count dropped 10%.
Strategic buyer deal count in July also declined 13% month-over-month and 10% year-over-year.
Sponsor buyer deal count fell 14% from June and 9% year-over-year.
Active M&A Industries (U.S. Targets)
By Deal Count
- The software industry remained at the top for U.S. M&A activity by deal count in July, continuing its streak as the leading industry by volume.
- Services industries remained active, rounding out the top three sectors in July by deal count.
By Deal Value
- The transportation sector topped the charts by deal value in July, driven by Union Pacific’s $71 billion announced merger with Norfolk Southern.
- The software industry was pushed to second place for most active sector by deal value in July, followed by the medical sector.
Global Blockbuster Deals
Largest Transportation Deal
- Union Pacific agreed to acquire Norfolk Southern in a stock and cash transactions with an equity value of approximately $71 billion.
Largest Software Deal
- Palo Alto Networks agreed to acquire CyberArk in a stock and cash transaction with an equity value of approximately $25 billion.
Inbound U.S. M&A Activity
- By deal value, inbound U.S. activity in July declined 10% from June. Year-over-year, inbound deal value held roughly steady (-4%).
- By deal count, acquisitions of U.S. targets by non-U.S. acquirers declined 7% in July. Year-over-year, inbound deal count decreased 25%, likely the result of continuing political uncertainty regarding foreign investment.
- UK- and Canada-based acquirers undertook the largest number of inbound transactions in July, with 15 and 12 deals, respectively. India trailed behind with 7 deals.
Outbound U.S. M&A Activity
- By deal value, acquisitions of ex-U.S. targets by U.S. buyers in July skyrocketed 219% from June to approximately $83 billion, the highest recorded in over 3 years. Megadeals in the software and pharmaceutical sectors drove the increase. Year-over-year, outbound deal value was up 129%.
- Despite the boom in deal value (caused by outsized blockbusters), outbound deal count decreased 16% from June to July. Year-over-year, outbound deal count declined 25%.
- U.S. acquirers predominantly looked to targets in the UK in July, with 29 transactions. Canada took second place with 15 transactions, and Australia took third with 9 deals.
Market Snapshot: Earnouts
Whether bridging stubborn valuation gaps, unlocking deals that might otherwise stall, or assuring founders they can participate in future upside, earnouts have become a defining feature of M&A in recent years. Key earnout market insights are highlighted below.
Earnout Usage
- Earnouts have gained prominence as a flexible solution to valuation uncertainty, especially in sectors facing rapid change or limited comps. They allow parties to bridge pricing gaps by tying a portion of the purchase price to the achievement of post-closing milestones, aligning incentives and enabling deals in challenging environments.
- In private-target North American deals (other than life sciences transactions)3 in which Ropes & Gray advised over the last 18 months, more than one-quarter included a milestone payment or other earnout mechanic.
- The noticeable post-2020 uptick (when 21% of comparable deals utilized an earnout) illustrates the extent to which parties have leveraged this mechanism to enable deals amid unsteady economic markets.
Basis for Earnout
- Sales or revenue-based metrics have been the most frequently utilized earnout triggers over the past 18 months, followed by EBITDA or other earnings-based targets.
- Other triggers that we observe include deal-specific objectives, such as high-multiple exits, closing of add-on acquisitions or technology-focused metrics (e.g., subscription counts).
Standard of Operation for Businesses Subject to Earnout
- Where earnouts are utilized, covenants and other guardrails regarding the standard of operation during the earnout period are often heavily negotiated.
- We have observed an increasing percentage of deals providing buyers with sole discretion to operate post-closing, often coupled with deal-specific or measurable obligations in lieu of “ordinary course” covenants. This trend continues from earlier years.
