Millennials are known to dislike labels. Now the mergers andacquisitions market is shedding them, too.

One of 2017's big deal trends was the blurring of industrylines. Retailers are buying software and online outposts, wirelessproviders are looking to own content, and Amazon.com, the king ofe-commerce, scooped up a brick-and-mortar food retailer, WholeFoods Market.

Convergence among industries continues to be a running theme forboth large and small transactions. That means analysts and bankerswho specialize in once-distinct areas of focus may needto bone up on other sectors. It also will make it that muchharder to predict the hottest sectors for M&A. Instead,pay closer attention to the underlying motivations for deal-making,said Russell Thomson, national managing partner for M&Aservices at Deloitte.

Some of the largest transactions now are the so-called verticalmegamergers such as CVS Health's offer for Aetna. Deals likethese are being driven by the shrinking growth opportunitieswithin certain lines of business and the cost-saving benefits ofhaving scale up and down the supply chain. Some industry giants mayalso view these transactions as a way to bypass antitrust hurdles.AT&T's lawyers, for example, are putting an extra emphasison the vertical nature of the company's Time Warner Inc.takeover in their argument that the government should allow itto pass.

Then there are the smaller add-on deals. These areprimarily for tech assets – because nowadayseverybody wants to be a tech company. In fact, the No. 1 strategicdriver of M&A this year will be acquiring technology assets,according to a survey of about 1,000 corporate executives andprivate equity firm leaders conducted for Deloitte.

Notice how words like software, digital and technology havebeen lighting up more and more press releases ascompanies from Walt Disney and General Electric to Ford Motorand Office Depot make investments rooted in tech to addressthe changing needs of their customers. None of theirmaneuvers have been as radical—or comical—as the LongIsland iced tea company that rebranded itself last monthas Long Blockchain Corp., trying to take advantage of thefervor over bitcoin and the technology that enablesit.

There were about $2.7 trillion worth of mergers and acquisitionsglobally last year, the lowest tally since 2013. That's becausetakeover activity in the U.S. was subdued much of the year as CEOsgrappled with the uncertain outcomes of major legislative proposalsand an ambiguous White House administration. There were a couple ofbombshells toward the end of 2017: the CVS-Aetna merger andDisney's $66 billion offer for most of 21st Century Fox's TV andfilm assets. As for next year, nearly two-thirds of Deloitte'ssurvey respondents expect heftier deals in 2018. Says Thomson, “Theoptimism around more and bigger transactions is real and stillthere.”

Part of the motivation may be that executives are attesting tomore successful transactions. Only 12% of corporate respondentssaid the majority of their deals didn't meet expectations forreturns or value creation, a drop from 40% in a spring 2016 survey.That is certainly an overlooked but encouraging point—if true. Withtakeover valuations, particularly in the U.S., holding at elevatedlevels, I need more evidence to believe we're not seeing moredesperate deals than smart ones. Case in point: the foodindustry.

But whether justified or not, megamerger mashups are poisedto return in 2018, and they may not fit neatly into one box. Itwill be a test of which CEOs can cut it outside of theircomfort zones.

From: Bloomberg News

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