Global mergers and acquisitions sank 17% in the first quarter of 2019 new figures show today.
Concerns about an economic slowdown and fears of a no-deal Brexit in Europe spooked chief executives and corporate boardrooms from pursuing big tie-ups.
While dealmakers expected a slowdown after 2018 emerged as the third-strongest year on record for M&A around the world, some worrying signs emerged, including a major drop in cross-border activity.
Cross-border M&A fell 45% in the first quarter of the year, as companies focused mainly on building scale on their home turf.
Activity in Europe plunged 67%, according to Refinitiv data, and dragged down global M&A volumes to $927 billion.
While megadeals in the US, such as Bristol-Myers Squibb's $74 billion deal to buy Celgene, were a bright spot lifting global activity, Europe saw the average deal size shrinking well below the $5 billion mark.
The UK lost its ranking as the world's third-biggest M&A market to Saudi Arabia, with activity down 62% to $40m while German M&A tanked 76% to $17m.
The region could remain anemic for deals for some time, investment bankers said, with the exception of some companies having to merge to build national champions, such as German lenders Deutsche Bank and Commerzbank.
British companies planning their post-Brexit survival could also turn to deals to better withstand a possible downturn, said Philip Noblet, head of UK investment banking at Jefferies.
"The amount of pressure on these companies will accelerate in the coming months and for some the choice will be between domestic consolidation and restructuring," Noblet said.
Currency volatility in Britain has so far deterred overseas buyers from bidding for global champions trading in London, but that could change after Brexit, Noblet added.
While global stock markets rose in the first quarter, central banks appeared to be bracing for decelerating growth.
Earlier this month, the US Federal Reserve abandoned projections for any interest rate hikes this year amid signs of an economic slowdown.
In contrast to Europe, the US, which is the largest M&A market, got off to its strongest start since 2000, with $489.52 billion in announced deals, up 9.4% compared to a year ago.
The number of deals was down by 40% year-over-year, however, indicating that big-ticket transactions were the main driver.
Consolidation in the healthcare industry, which was the busiest sector with $181 billion in value, shows no signs of slowing down, analysts said.
"Between competition for new drugs, improving technology, the aging of the global population, a number of factors will continue to drive M&A in the healthcare sector, whether it's biotech or insurance providers," they added.
Unsolicited approaches, such as Barrick Gold's $18 billion bid for Newmont Mining in February, made a comeback, as well as offers to gatecrash previously announced deals.
This exuberance could be a sign of the M&A markets overheating, investment bankers said.
In March, Germany's pharma group Merck launched a hostile $5.9 billion all-cash takeover offer for Versum Materials, which already had agreed to a merger with US rival Entegris.
British packager RPC Group ditched a previous deal to be acquired by Apollo Global Management after receiving a higher offer from plastics maker Berry Global Group worth £3.34 billion.
"We haven’t seen this volume of deal jumps in a long time, especially cross-border activity, until this quarter.
"This is significant because it signals an elevated level of energy and a willingness to take more risk," said Michael Carr, co-head of Goldman Sachs' Mergers & Acquisitions Group.