LONDON/NEW YORK (Reuters) – Global mergers and acquisitions (M&A) sank 17 percent in the first quarter of 2019, as 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 percent in the first quarter of the year, as companies focused mainly on building scale on their home turf. Activity in Europe plunged 67 percent, according to Refinitiv data, and dragged down global M&A volumes to $927 billion.

“Many companies feel there is a lot at stake given all the uncertainty surrounding Brexit and the trade tensions between the U.S. and China,” said Dirk Albersmeier, co-head of EMEA M&A at JPMorgan Chase & Co.

While megadeals in the United States, such as Bristol-Myers Squibb Co’s $74 billion deal to buy Celgene Corp, were a bright spot lifting global activity, Europe saw the average deal size shrinking well below the $5 billion mark.

Britain lost its ranking as the world’s third-biggest M&A market to Saudi Arabia, with activity down 62 percent to $40 million while German M&A tanked 76 percent to $17 million.

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 U.S. Federal Reserve abandoned projections for any interest rate hikes this year amid signs of an economic slowdown.

“The macro-economic outlook is murky,” said Wilhelm Schulz, chairman of Citigroup Inc’s EMEA M&A. “It’s not just because of Brexit or trade tensions. The main reason why people are sitting on the sidelines is the slowdown in global growth.”

U.S. OFF TO A STRONG START

In contrast to Europe, the United States, which is the largest M&A market, got off to its strongest start since 2000, with $489.52 billion dollars in announced deals, up 9.4 percent compared to a year ago.

The number of deals was down by 40 percent 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, said Sullivan & Cromwell LLP M&A lawyer Krishna Veeraraghavan.

“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,” Veeraraghavan said.

Unsolicited approaches, such as Barrick Gold Corp’s $18 billion bid for Newmont Mining Corp 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 KGaA launched a hostile $5.9 billion all-cash takeover offer for Versum Materials, which already had agreed to a merger with U.S. rival Entegris.

British packager RPC Group ditched a previous deal to be acquired by Apollo Global Management LLC after receiving a higher offer from plastics maker Berry Global Group Inc worth 3.34 billion pounds ($4.4 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.

Companies could now time their deals to get out ahead of the start of the 2020 election cycle, said UBS Group AG’s co-head of Americas M&A said Marc-Anthony Hourihan.

“No technology or healthcare company would want their deal to become a talking point during the U.S. primaries,” Hourihan said. “Clients are already thinking about their game plans for political football.”