This article originally appeared in Global Finance by Joel Kranc
Asia-Pacific to show most M&A activity. Healthcare, consumer goods, technology sectors to see most deal action.
Global mergers and acquisitions (M&As) are expected to hit a record $3.2 trillion in 2018 after hitting $2.6 trillion in 2017 as per a report by law firm Baker McKenzie. Another by financial technology solution provider Intralinks, the Deal Flow Predictor, saw deals in the first quarter of 2018 increase by 2% on a year-over-year basis.
Mergers and acquisitions (M&As) have not seen such an uptick in activity since the economic crisis in 2007. It doesn’t matter which report (of the many) one looks at, there seems to be unanimous consensus on 2018 heading towards being a record setting years for M&As globally.
Intralinks forecast growth for M&A deals in three out of the four global regions in the first quarter of 2018 on a year-over-year basis. M&As in Asia-Pacific were expected to increase by 14%. The Europe, Middle East and Africa (EMEA) and Latin America (LATAM) regions were expected to see M&A activity growth of 6% and 3%, respectively. Only North America was predicted to see 11% decrease in M&A activity in the first quarter of 2018 on a year-over-year basis owing to exceptionally strong M&A activity in the first quarter of the 2017 comparison period.
North America was expected to see strong growth in M&A activity over the next 12 months though.
A Deloitte survey found similar results with 68% of executives from US headquartered corporations and 76% of leaders at domestic private equity firms expecting an increase in M&A activity over the next 12 months. Of these, 63% saw an increase in deal size.
“2017 has been a pretty bumper year overall for M&A activity worldwide,” says Philip Whitchelo, vice-president of Strategy & Product Marketing, Intralinks. “When the final numbers are in for the number of announced deals, we are expecting about 50,000 deals for 2017 and that will be a new record.”
Below-trend growth in advanced and emerging economies contributed to strong M&A activity over the past three years. When growth is slow, says Whitchelo, companies often look to M&As to provide them with inorganic growth and revenue on their balance sheets.
He said that low inflation also contributed to companies looking at M&As to grow profit and revenue, adding that a third trend was the low interest rate environment that allowed companies to borrow money for acquisitions at very low rates. “If you add these things together it’s been a perfect storm that enabled companies to do, very easily, more M&A transactions,” says Whitchelo.
Analysts throw in a word of caution though for M&As going forward. Mergermarket research analyst Elizabeth Lim says that the current uncertain regulatory and political environment has had an effect on ‘megamergers’.
Companies want to engage in large-scale deals but are holding back to see if the environment clears before they expend the effort, time and money only to find regulations preventing them from closing deals at a later date.
“They also want to see how tax reforms settle to see if they want to borrow more or less money,” says Lim “So that affects the financing aspect of the deal and there are all these political questions at play right now.”
Intralinks agreed with the Mergermarket analysis. The firm said there maybe some difficulty to meet the total number of announced deals in 2017. Issues like ongoing talks concerning the North America Free Trade Agreement (NAFTA), and other political and economic events are creating concern in the markets.
Sectors And Trends
Considering all sectors, Intralink’s Whitchelo expects healthcare to see the most deals. “Healthcare M&A globally is very active in pretty much every single region, including North America, where we are expecting a bit of a decline.”
Mergermarket, though, is placing its bets on the consumer goods sector, calling it the most compelling sector for 2017. It has come a long way from being considered among the middle-of-the-road sectors historically, to seeing deals like Amazon’s acquisition of Whole Foods in 2017.
The biggest trend that has driven M&A in this past year, and will continue to do so, is digitization and technology said Lim. “It’s really taken off this year and we see this spilling into other sectors like consumer, energy and mining, and biotech.”
In future, both Lim and Whitchelo agree that topics like artificial intelligence (AI), data privacy and data sovereignty will have profound influences on M&A activity. “M&A is a slow moving industry,” says Whitchelo. “There has not been a lot of change over the last 20 or 30 years. [Now] AI is being used to speed things up like due diligence, automated discovery.” Expect more AI driven products and services to meet the needs for the M&A market in future.