The amount of mergers and acquisitions in 2020 will trail the previous two years, transactions lawyer Michael Nemeroff told CNBC on Monday.
“We still think 2020 will be robust, but not quite as robust as 2019 and 2018,” Nemeroff, the CEO of law firm Vedder Price, said on “Closing Bell.”
The value of deals across the globe in 2019 was $3.8 trillion through Friday, according to Dealogic data reported by the Wall Street Journal. While it is down 4% from 2018, it is the fourth-highest amount on record.
Nemeroff said there are three main factors that he believes will lead to the slow down, the first of which is high stock valuations alongside slow earnings growth.
Pair them together and the result is “not really a juicy environment for big-deal M&A,” said Nemeroff, who is chairman of the law firm’s finance and transaction’s group.
Nemeroff also pointed to the 2020 presidential election and the possibility of a progressive Democrat such as Sens. Elizabeth Warren or Bernie Sanders winning the party’s nomination and November’s general election.
That political risk extends to progressives increasing their representation in the U.S. Congress, Nemeroff said. Those possibilities, he argued, may change the “viewpoint of corporations around America in terms of growth and M&A.”
And third, Nemeroff said regulatory uncertainty associated with the myriad antitrust investigations of Big Tech firms such as Facebook, Alphabet and Amazon could hinder some potential acquisitions.
Some of 2019’s notable deals include a proposed merger between Raytheon and United Technologies.
Charles Schwab announced plans to buy discount brokerage rival TD Ameritrade, and LVMH also struck a deal to buy Tiffany & Co. in the fall.
Looking generally at 2020, Nemeroff said he believes legacy companies will continue to target deals that will increase their competitiveness in the technology era.
As an example, he pointed to PetSmart’s $3 billion acquisition in 2017 of Chewy, which went public earlier this year.
Those types of deals “will continue in a major way … in 2020 as a business necessity, regardless of the other factors we’ve been talking about like valuations,” he said.
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