Following a summer of uncertainty post Brexit, investors all over the world are returning from summers spent on the beach, ready to do some serious M&A business to close out the year.
We have seen a comparatively quiet year for M&A when you look at the figures for 2015, with deal values in the UK around half of the $215 billion that were announced at the same time in 2015 (Thomson Reuters data). On the face of it, the 2016 figures are disappointing but there are a number of factors that went into 2015’s record year. Plus, in September, it is far too early to rule out the year just yet. In fact, 2016 might be just getting started.
Oranges and apples
First of all, we need to address those 2015 figures. There is a good reason why the $5 trillion from 2015 deal-making will not be beaten this year. Analysts and investors have labelled these figures as ‘out-of-the-ordinary’ with deals finally picking up after a long post-credit crisis lull. There was also a size-able shift in the types of companies being acquired, from the more traditional manufacturing and industrial businesses which formed the backbone of the M&A market to telecoms, media and consumer goods businesses. As with most sectors that experience a rapid flurry of M&A activity, it has leveled in 2016.
Also, 2016 has seen the world get to grips with Brexit and a looming US presidential election, both of which, as well as other global events, have greatly impacted deal-making. Now that the dust has started to settle on the European front, M&A activity is expected to dramatically increase.
Just when everyone thought it was all over for 2016, August saw the $14 billion mega-deal between Pfizer and Medivation announced causing investors all over the world to sit up and take notice. The long rumoured mammoth deal between the pharma companies not only signaled that big deals are back on the table, it suggested something that investors all over the world had been hoping was true; deals that were put on hold at the start of the year in light of market turbulence were starting to be, not just revisited, but closed.
Also, bankers have predicted that, while IPOs are expected to rise in the final months of the year, private equity deals may well see a welcome boost to see out 2016.
We live in a digital age and digital transformation, whether that is cloud, mobile, social or big data technologies, has already spurred on high-value deal-making so far in 2016 and does not look as though it is coming to an end any time soon with companies using M&A to accelerate their transformations.
In fact, technology M&A is expected to take off towards the end of 2016 in part because private market valuations have been stalling for start-ups, meaning they have become attractive targets for strategic buyers.
In short, major M&A activity is still expected for the rest of 2016 and those who are still trying to compare it with the unusually heightened levels in 2015 should remind themselves of the reasons why it is not a fair contrast.
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