Cross-border deals fell 27% in value in 2019 compared with 2018, according to Allen & Overy's M&A Insights Q4 2019 report.
In addition, there was a dominance of large domestic transactions globally with the top 10 deals in the year all within one country.
Overall global trends show that deal values and volumes were down by around 7% and 10% respectively.
Despite this, 2019 is still set to be the third strongest year to date in terms of value and the fourth strongest in transaction volumes for a decade, the firm pointed out.
"The fact that the market is still so strong when anxieties are rising around macro-economic issues is proof that many investors are keeping their nerve,” said Richard Browne, global co-head of M&A at A&O. "Next year may well test this resolve more sharply but investors will, we believe, continue to be active, absent significant political or economic shocks."
The strength of the global market was underpinned by a resurgence in strategic megadeals, which wereonce again powering the market, according to A&O.
Deals over US$5 billion account for 43% of the value of worldwide M&A and deals worth more than USD10 billion make up 33% of total value, the firm said.
The slowdown in global dealmaking is cross-sector, nearly all of which declined by value compared to 2018, with TMT the most stark example at 15% down the previous year, according to A&O.
The exceptions are the financial services sector, which saw an increase of 9% and life sciences and healthcare, which experienced a 19% increase in deal value in 2019 compared to 2018, giving the sector global deal value of US$ 479 billion.
Despite a general decline in activity, the US continued to drive global activity, accounting for 48% of global transactions by value at US$1.7 trillion, A&O noted.
While domestic deals dominate, the US also remains both the biggest target market and acquirer in cross-border deals.
"What we are seeing in the strength of the M&A market is that corporates and other investors have concluded that despite the advanced age of the current cycle we are not about to descend into a recession, rather that the current cycle still has legs,” said Eric Shube, head of US M&A.
By contrast, Europe was down significantly with the market at its weakest since 2017 accounting for 18% of global deals by value and Asia did not perform so poorly since 2014, he said.
However, within this Japan has seen a continued focus on outbound investment, investing over twice as much as China overseas, he added.
Demographic issues are driving this, with Japan's ageing population causing the domestic market to shrink and businesses recognising that the best way to achieve top line revenue growth is through M&A, Shube explained.