23 Jan, 2018
M&As In 2018
Global mergers and acquisitions are expected to hit a record $3.2 trillion in 2018 after hitting $2.6 trillion in 2017 as per a report by Baker McKenzie.
Mergers and acquisitions have not seen such an uptick in activity since the economis 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.
M&As in Asia-Pacific were expected to increase by 14%. The Europe, Middle East and Africa (EMEA) and Latin America (LATAM) regions were expetced 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. When the final numbers are in for the number of announced deals, it is expecting about 50000 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 companies often look to M&As to provide them with inorganic growth and revenue on their balance sheets.
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.
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.
Sectors And Trends
Considering all sectors, healthcare is expected to see the most deals. Healthcare M&A globally is very active in pretty much every single region, including North America, where it is 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. It’s really taken off this year and we see this spilling into other sectors like consumer, energy and mining, and biotech.
In future, 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. 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.
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