Corporate Finance

2015 to 2016: A Roller Coaster for Global M&A


2015, an unprecedented year in the history of global M&A

2015 went down as the most active year for mergers and acquisitions since 2007. According to Thomas Reuter’s annual report, the year 2015 achieved the unprecedented number in global M&A value of some $5 trillion following $3.5 trillion in 2014 and $2.8 trillion in 2013. 42,300 deals were announced worldwide, resulting in a 0.2% increase in the figure compared to 2014. The fourth quarter of 2015 outperformed others and totaled $1.6 trillion, making it the third consecutive quarter with trillion plus deal value. Europe, the United States and Asia Pacific are the most dynamic regions. Thanks to the QE policy that launched in January 2015, Europe has received $512.2 billion in inbound deals, the highest on record. On the other hand, M&A activities for US targets amounted to $2.3 trillion, whereas deal value in Asia Pacific hit $1.1 trillion, both are unprecedented figures.

 

Apart from the large number of announced deals, another reason why it was such a record year were the 71 announced deals each worth more than $10 billion. Thus 2015 is also recognized as the year of the megadeal. Last year, although one of the deals in excess of $100 billion proposed by Pfizer was withdrawn due to the new tax regulation announced by the US Treasury Department, deals exceeding $50bn  contributed to a record share of global M&A at 19.0%, up from 10.4% during the peak in 2007, according to Dealogic. Several high-profile sectors also hit record highs in terms of aggregated annual deal value, among them financial services, pharmaceutical, computer manufacturing (including electronics and optical products) and the energy industry, which all saw a slight decrease in deal volume yet a surge in total value compared to 2014, thanks to the increased announced value and dynamic M&A activities (Source: Raconteur).

 

Some factors have contributed to this phenomenon. Inexpensive debt stemming from low interest rates have allowed investors keep their powder dry. Moreover, as the economy is facing stagnation, investors are actively looking for further growth under pressure from shareholders. As a result, cross-border M&A volume in 2015 was up 27% on 2014. Although investor preferences may have changed following  political and economic uncertainties such as Brexit, Brazil’s political and fiscal crisis as well as the slow recovery in the economy of the European Union. The concerns justify investors’ practice of having economic conditions as a crucial factor when discovering competitive markets. In general, investors have also shown interest in numerous emerging countries besides those on the top list to implement a diversified investment strategy, according to a survey distributed by Deloitte.

 

2016, full of uncertainty

Investors are optimistic about M&A activity in 2016, since it is still one promising way to bolster a firm’s portfolio and reach inorganic growth by shortcutting. Pharma company Shire buying its rival Baxalta for $32 billion takes the crown, for now. Yet the statistics aren’t that positive: To date in 2016 five jumbo deals have been withdrawn. Including Halliburton taking their $38.7 billion bid for Baker Hughes off the table on the 30th of April (the largest withdrawn deal in the history of the oil & gas industry). Global withdrawn M&A in Q1 2016 hit $465.5 billion, the second highest level since the $505 billion in 2007 and more than double the amount of the same period in 2015 ($189.9 billion).

 

Given the uncertainty after the result of the UK’s referendum on European Union (EU) membership, the US presidential election and increasingly tough fiscal regulations worldwide, firms are cautious and are postponing dealmaking activities. MergerMarket’s report indicates that global M&A value decreased by 26.8%, the US suffered a 31.5% decrease, the EU a19.3% dip and Asia Pacific a fall of 30.7% in announced value, all compared to H1 2015. However German companies stand out as the deal value towards US targets rose 70.8% more than H1 2015, the ongoing $62 billion Bayer-Monsanto bid is evidence of this trend. Chinese companies are also dynamic acquirers of westerntech firms, such as Midea Group’s $ 4.3 billion acquisition of German robotics maker KUKA.

 

The trends not only imply the delayed decision among investors due to high market volatility, they also suggest the changing balance between mature and emerging markets as Asia Pacific generously injecting large amount of cash available for investment into the EU and the US while inbound M&A to the region is decreasing. Moreover, soaring popularity among Central & South America, the Middle East and Africa also echo investors’ intention to diverse the risk.

 

 

C. L.

 

This is part of our series articles in the International Corporate Finance Report.

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