Government continues to put chill on deals

The M&A boom is cooling, hurt in part by a chilling effect due to the government’s recent moves to put the kibosh on some high-profile deals. U.S.-targeted M&A deals through May 10 totaled $408.78 billion, down 22% from the same point in 2015, according to Dealogic. The value of M&A deals withdrawn in the same period hit a record $395.35 billion.

One theory for the cooling mergers and acquisitions market is that 2015 was a record-setting year with more than $2 trillion in U.S.-focused deals, says Richard Peterson, senior director at S&P Global Market Intelligence. Another possible headwind? The uncertain market environment.

But government interference is also a big factor. A number of big deals recently have been shelved, due to antitrust issues and a government crackdown on so-called tax “inversions,” in which a U.S. company switches its domicile abroad to pare down its tax bill.

On Tuesday, Staples and Office Depot said they planned to scrap their roughly $6 billion merger deal after a federal judge granted the Federal Trade Commission’s request for a preliminary injunction to block it. The FTC had argued that the marriage of the office supply stores would lead to higher prices due to less competition.

Last month, drugmaker Pfizer pulled its $160 billion acquisition of Dublin-headquartered Allergan after the U.S. Treasury unveiled rules to curb inversions. Oil services firm Halliburton also called off its bid to buy Baker Hughes after facing Department of Justice opposition.

“There is a perception that no matter what (companies) want to do, it will get shut down by the Obama administration for one reason or another, so why bother?” says Phil Orlando, chief equity strategist at Federated Investors. Many companies, he adds, are saying “let’s hold off until next year and maybe we will have an audience that is more friendly and we have a better chance of getting the deal through.”

Orlando says many companies might also be waiting for more clarity on the outlook for the economy and the Federal Reserve’s interest rate plans.

Despite the apparent deal slowdown, Petersen says M&A levels are still “healthy” despite the big deals that didn’t get done. He says M&A activity can pick up quickly and turn what looks like a lousy year for M&A into a good one.