How Will M&A Activity Be Influenced By The Changing World Economy

Back on May 18th I moderated the global webinar “How Will M&A Activities Be Influenced By The Changing World Economy”. We discussed key historical-trends in M&A activity and how things may play out for the rest of year and beyond. We also discussed key global economic trends and their effects on corporate M&A activity. Here is what we learned:

S&P Global Ratings on the Global Economy, May 18th 2016:

• The three main swing factors for the global economic and financial markets in medium term are split into The Three C’s:
• China: The country’s transition to a new growth model
• Commodities: Financial markets have viewed the drop in oil prices earlier this year as a clear negative, mainly because it raises the risk of defaults in the U.S. and global energy companies
• Central banks: Are they running out of ammunition or experiencing the law of diminishing returns
• World Trade Growth remains weak: A pick-up to 3.5% world trade growth is expected in 2016 from about 2% in 2015, still clearly below the long-term average of around 5%. This is more like the pace normally seen in global recessions than in upturns (Source: CPB Netherlands Bureau of Economic Policy Analysis):Global Economic recovery remains reliant on consumer spending
• Low Interest Rates are here to stay as central bank maintains an accommodative stance

Deloitte* on Global M&A, May 18th 2016:

• 2015 was marked by unique and fertile conditions for deal making. Companies rebuilt their balance sheets, accumulated record levels of cash reserves and stock market rallies boosted valuations; this was further boosted by record low levels of interest rate, availability of credit, and a strong appetite from the market to support deals
• Deal originating from China and Japan are expected to flourish in 2016
• Credit conditions remain largely favorable, however political and economic uncertainties are likely to remain a drag on M&A momentum
• Divergence is emerging as a central theme, not just in economic growth and macro-factors, but also on company balance sheets. For example companies in Asia-Pacific and Europe are seeing diminishing cash reserves while the cash reserves of North American companies is increasing

*The views expressed by Deloitte are their own and not necessarily the views of S&P Global Market Intelligence or its affiliates.

S&P Global Market Intelligence on European M&A Sector Trends, May 18th 2016:

• M&A volumes in consumer staples, energy, and information technology grew from 2014 to 2015
• Consumer Staples 317.6%, Energy 243.9%, IT 75.2%
• M&A trends show that things could be leveling off in 2016
• Q1 M&A value down globally 35% in 2015
• US targeted M&A down 40% and activity is the lowest since 2009
• EMEA dropped slightly to $220bn (USD) the lowest activity since 2004
• UK dropped nearly 40% to around $46bn (USD), but announced deal numbers are similar to Q1 2015

• Asian buyers making continued push into Europe particularly in technology sector which is set to be among the most active in 2016 ((for more insight on this topic please read this blog.

• •  Chinese offshore purchases were around $105bn (USD) near the end of Q1 in 2015, which was a record year

• Japan targeted M&A more than doubled to nearly $35bn (USD)
• Cross border transactions accounted for around 43% of total activity, a record high for the country
• Technology top sector with highest Q1 since 2000 at just over $100bn (USD), healthcare down by over 50

Source: S&P Capital IQ platform

Speakers featured in the picture above (from left to right):

• Pavle Sabic (moderator), Head of Market Development, S&P Global Market Intelligence
• Jean-Michel Six, Chief European Economist, S&P Global Ratings
• Sriram Prakash, Global Lead M&A Insights, Deloitte
• James West, Head of EMEA Market Development, S&P Global Market Intelligence

Watch the full replay of the webinar here.