Investors seem more influenced by long term strategic decision making
The easing of key economic and political risks and the emergence of positive macroeconomic deal drivers will accelerate global deal activity in 2018, pushing global Mergers and Acquisitions (M&A) values to $3.2trillion, the third edition of the Global Transactions Forecast issued by Baker McKenzie, has predicted.
According to Michael DeFranco, Global Head of M&A, Baker McKenzie: “2017 played out as we predicted and there have been a number of positive developments in the global economy that have led to the forecast for global M&A values in 2018 to be increased from our previous forecast of $3 trillion to $3.2 trillion. This would represent the 3rd highest yearly deal value since 2001 and the 2nd highest since the financial crisis in 2008.”
The report, developed in association with Oxford Economics, highlights why investors around the world are feeling increasingly confident as 2018 approaches, with appetites strengthened by positive trends such as more-buoyant world trade and economic growth, elevated equity valuations, and the prospect of cheaper financing in emerging markets.
“After a few soft patches in 2017 we have a more optimistic outlook for the global economy and deal making in 2018, as long as the brakes are not put any further on global free trade. We see an uplift in both M&A and IPO activity as dealmakers and investors gain greater confidence in the business prospects of acquisition targets and newly-listed businesses. However it’s not a done deal, with the threat of a Hard Brexit and a NAFTA collapse both still very real. Business will need to continue to make the case for liberal trade and investment frameworks,” said Paul Rawlinson, Baker McKenzie’s global chair.
Baker McKenzie’s previous forecast in last January predicted a flat M&A market this year with a modest decline in global M&A values, from $2.8 trillion in 2016 to $2.5 trillion in 2017.
In addition to positive economic developments, underlying strategic drivers such as the search for growth and yield, the use of consolidation to achieve synergies, the deployment of unspent capital, and the use of M&A to drive business model changes will aid the increase of M&A activity in 2018.
“In the Middle East, investors are still drawn to the regional demographics, GDP growth and the UAE’s role as a hub for the region and into Africa, and they appear to have adapted to the headwinds witnessed regionally in 2017. M&A activity has continued to fare well through 2017 and is likely to remain at similar levels in 2018, with improvements in oil prices offset by increased regional instability. Fortunately, investors appear to be ultimately more influenced by long term strategic decision making than short term economic considerations,” said Will Seivewright, Corporate/ M&A partner at Baker McKenzie Habib Al Mulla in the UAE.
According to the report, a range of factors will cool deal activity from 2019 onwards particularly in developed markets, including higher interest rates, a cyclical easing in global trade and investment growth, and a correction in equity prices back towards fundamentals. The forecast predicts M&A values to drop to $2.9 trillion in 2019 and $2.4 trillion in 2020.
In the IPO market, the forecast predicts values to climb from $187 billion in 2017 to a cyclical peak of $290 billion in 2018, a near record-breaking number.