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Getting The Deal Through

Global overview

Alan M Klein

Simpson Thacher & Bartlett LLP

Wednesday 08 August 2018


M&A activity in 2017 was a complicated story. Globally, activity levels overall remained prosperous, on a par with healthy 2016 levels. However, certain regions such as Europe saw significant growth, while the US was at best stagnant. The total value of announced deals last year was US$3.4 trillion according to Bloomberg, representing a 5.6 per cent decrease from the previous year. Despite a slightly lowered total value, however, 2017 saw a 3 per cent increase in the number of deals as compared to 2016. With 49,448 deals announced globally, 2017 was the strongest year by number of deals since 1980. Notably, 2017 marked the fourth consecutive year in which M&A activity has broken US$3 trillion. This high level of M&A activity was sustained despite increased global geopolitical uncertainty, including the recent tax legislation by the US Congress, heightened regulatory scrutiny in China and market risks associated with Brexit and several presidential elections in Europe. Global M&A activity thus started slow and steady in 2017, but accelerated during the fourth quarter of 2017, when its total value increased by 33 per cent compared to the third quarter and totalled US$1.1 trillion. The fourth quarter of 2017 marked the third consecutive fourth quarter to surpass US$1 trillion in announced deals, and four of the five largest deals in 2017 were announced in the fourth quarter.

The comparable levels of M&A activity seen in 2016 and 2017 reflect similar patterns in the number of blockbuster deals. Whereas four deals announced in 2016 each exceeded US$50 billion in value, three deals announced in 2017 exceeded US$50 billion in value, including Broadcom’s US$128.6 billion proposed acquisition of Qualcomm, CVS’s US$67.8 billion proposed acquisition of Aetna and Walt Disney’s US$67.7 billion proposed acquisition of 21st Century Fox. Deals with announced values less than US$1.0 billion increased 7 per cent in number and increased 7 per cent in value. Further, as noted above, despite the slight decline in M&A volume in 2017, the total number of deals announced worldwide in 2017 increased by 3 per cent as compared to 2016, reflecting increased activity in the middle market. In 2017, deals valued under US$500 million increased by 2.8 per cent from 2016.

Globally, private equity activity in 2017 made up the highest percentage of M&A deals in the past 10 years, comprising over 18 per cent of all transactions by value. In Europe, private equity M&A activity in 2017 also reached its peak since the financial crisis, increasing by 30.3 per cent. The Asia Pacific region, excluding Japan, saw an increase of over 37 per cent in the value of private equity transactions, and private equity activity in Japan in 2017 was more than double the prior year. The new highs reached by private equity outweighed declines in other areas. Low interest rates and large corporate cash reserves clearly fostered positive conditions for private equity M&A activity in 2017.

The top industry in terms of global M&A activity for 2017 was the financial sector with US$871.6 billion in announced transactions, which accounted for 25.6 per cent of deal value in 2017, followed by consumer non-cyclical, communications, industrial, consumer cyclical, energy, technology and utilities, each of which accounted for 20.9 per cent, 10.5 per cent, 10.5 per cent, 9.9 per cent, 9.0 per cent, 5.9 per cent, and 4.4 per cent, respectively, of total deal value in 2017. Also, cross-border M&A globally was a notable feature of the 2017 M&A market. While cross-border M&A deals reached 41.9 per cent of total M&A value in 2017, the highest annual percentage since 2014, the number of cross-border deals decreased by 10 per cent compared to cross-border volume in 2016 and was the slowest year since 2014 by that measure. This was in part attributable to increased levels of outbound M&A from US-based acquirers and intra-Europe activity, but a 35 per cent decline in China’s outbound M&A compared to 2016.

By region, although the Americas continued to lead the global M&A market in 2017 with US$2 trillion in activity from 20,301 announced transactions, the Americas suffered a decrease of M&A activities by 8.3 per cent as compared with 2016. The US accounted for 40.2 per cent of the global value, the lowest percentage since 2012 and had announced deals worth US$1.3 trillion. Although the volume of US-targeted deals declined by 15.6 per cent as compared with 2016, the number of US targeted deals increased by 13.6 per cent as compared with 2016. Seven of the 15 largest transactions announced in 2017 involved US targets. The top three sectors leading the US market included the technology sector, the energy and power sector and the healthcare sector, each of which accounted for 16.9 per cent, 16.1 per cent and 14.9 per cent of the market respectively.

It was another strong year for M&A activity in the Asia-Pacific region. 13,516 deals were announced in 2017 in the region, a slight increase from last year. While the volume of M&A activity declined modestly by 1.6 per cent, M&A activity in the region once again surpassed US$1 trillion. The decrease in China’s outbound activity in 2017 was noteworthy. China’s outbound activity in 2017 decreased by 35 per cent in value and 6 per cent in number of deals as compared to 2016. This decline can be attributed to a tightening by the Chinese government of permitted capital outflows and to an increase in regulatory scrutiny of transactions by Chinese acquirers by various governments, particularly the US. Although China’s outbound M&A volume slowed significantly, it remained in rank just behind the United States, creating the narrowest gap ever, according to Dealogic.

The European M&A market, despite starting 2017 with great uncertainty in the marketplace, saw a stronger year as compared to 2016, increasing its activities by 14 per cent in value and accounting for 29.6 per cent of global M&A. Also, the average deal value in Europe reached US$390.8 million, the highest since 2001. The European M&A market ultimately had a strong year for dealmaking, recovering from the uncertainty imposed by Brexit and elections in France, Germany and Netherlands.

Deal activity in 2018 is expected to stay strong. About 68 per cent of executives at US-headquartered corporations and 76 per cent of leaders at domestic-based private equity firms expect greater deal flow in 2018, according to Deloitte. As demonstrated by the performance of the M&A markets thus far, despite political and economic uncertainty globally, the factors that have fostered a booming M&A market in years past remain in place: low interest rates, large corporate cash reserves and limited prospects for organic growth. The developments of 2017, including the increased capital held by US private equity firms and the new tax policies of the Trump administration, could accelerate M&A activity in 2018.

For over 15 years, our predecessor publication, Getting the Deal Through – Mergers and Acquisitions, and now this title has sought to provide information of use to practitioners and clients around the world. The pace of the globalisation of the M&A economy has far outstripped what anyone could have predicted. In that time the global economy has gone through several cycles and suffered cataclysmic reverses and huge booms. We hope throughout that time and for some time to come that this publication has been and will continue to be a resource of great use to those who seek it out.


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