Volatility in the US stock market, growing concerns about China’s economic slowdown, and dropping oil and commodity prices caused dealmakers to become more cautious. Those concerns were compounded by the UK’s vote to leave the European Union and the US presidential election. We expect this environment of uncertainty to continue for at least the first quarter of this year, with M&A activity dropping to US$2.5 trillion in 2017 from US$2.8 trillion in 2016. Equity markets around the world rebounded in the weeks following the US election, but we are cautious about assuming a recovery in deal activity given the lack of clarity about the UK-EU relationship and the new US administration’s policies on trade and investment. Once greater clarity emerges, we expect global M&A activity to pick up to a peak of US$3 trillion in 2018. Then deal making will gradually slow in 2019, dropping to US$2.8 trillion that year and US$2.3 trillion in 2020, as global finance becomes more expensive and valuations start to fall. We expect IPO activity to rise modestly in 2017 and bounce back in 2018 and 2019 as companies that had postponed their listings return to public markets. Another factor likely to support an IPO recovery is the number of countries looking to list state-owned companies to raise money, particularly in Central and Eastern Europe, the Commonwealth of Independent States, the Middle East and Africa. We forecast that global IPO activity will rise from US$131 billion in 2016 to US$168 billion in 2017, then peak at US$275 billion in both 2018 and 2019. From a sector perspective, a key driver of global deals will be the tech sector, where M&A is forecast to reach US$415 billion by 2018 — the highest since 2000. We expect a similar uptick in IPO activity led by Snapchat’s mooted IPO. If Snapchat’s IPO is successful, it would be the largest US-listed technology offering since Alibaba Group’s IPO in 2014. Healthcare, particularly biotech and pharma deals, will also fuel the upturn amid greater innovation, less regulatory intervention in the US and a larger role for private health providers in supplying public health services. Deal making in the finance and consumer goods sectors will drop slightly in 2017 before rebounding in 2018. For finance, tech innovation and consolidation in Europe’s banking industry is likely to boost M&A while the consumer goods sector continues to reap the benefits of cheaper energy and major growth in consumer spending. Deals in the energy sector will only modestly recover in the next few years as oil prices gradually rise. However, 2017 could potentially see the listing of Saudi oil giant Aramco in what would be the biggest IPO in history. We base our M&A and IPO forecasts in this report on the anticipation that EU and UK officials will make progress on establishing a new relationship in 2017, and that the new US administration will adopt a less protectionist stance on international trade and immigration policy, while setting out plans for fiscal stimulus. Also assuming that China continues to manage its economic slowdown and the Eurozone continues its economic recovery, we anticipate that financial markets will continue to hit new highs and investor confidence will rise. Alongside this renewed market activity and investor confidence, global deal making has the potential to rebound in the coming years, given the massive cash reserves sitting on corporate balance sheets and near-record levels of private equity dry powder. Barring further shocks to confidence, investors will have the firepower they need to pursue acquisitions, and their apprehension will turn into appetite.
NORTH AMERICA WILL REMAIN THE LARGEST MARKET FOR M&A TRANSACTIONS, ACCOUNTING FOR 50% OF GLOBAL M&A VALUES IN 2017 AND 2018. Key to the outlook is the policy agenda of the new US administration. While uncertainty prevails about the new president’s plans for trade and investment openness, we expect deal making to remain constrained in 2017, totaling US$1.25 billion. But assuming the new US administration adopts a relatively pro-business policy agenda, we expect deal values in North America to pick up in 2018, rising to a peak of US$1.4 trillion.
KEY FORECASTS BY REGION
ASSUMING AN AMICABLE SEPARATION, BREXIT WILL HAVE ONLY A MODEST IMPACT ON TRANSACTIONS IN MOST OF EUROPE. Although we forecast M&A activity in the UK to drop sharply in the next few years as investors wait for details to emerge about the UK’s new trading and financial relationship with Europe, the rest of the region is poised to recover. We forecast deal values in Europe excluding the UK to rise from US$319 billion in 2016 to US$459 billion in 2017, and on to a peak of US$613 billion in 2018. In the UK, we forecast M&A values to fall to US$125 billion in 2017, down more than 60% from US$340 billion in 2016.
IN ASIA PACIFIC, THE SLOWING CHINESE ECONOMY AND CONCERNS ABOUT THE REGION’S TRADE PROSPECTS IS DRIVING DEAL VALUES LOWER, TO A FORECASTED US$566 BILLION IN 2017. But assuming the new US administration adopts a relatively liberal global trade policy, Asia Pacific’s globally competitive labor forces, strong demographics and rising productivity should support a deal-making recovery. We forecast total M&A activity to pick up to US$676 billion in 2018 and US$727 billion in 2019, before easing in 2020.
IN AFRICA AND THE MIDDLE EAST, LOW OIL PRICES AND PERSISTENT SECURITY WORRIES WILL UNDERMINE DEAL APPETITE THROUGH 2020. In 2016, M&A deal values fell to US$37 billion, down 40% from US$61 billion in 2015. We forecast a further drop to US$29 billion in 2017 before a modest recovery in commodity prices and the easing of austerity measures push the region’s M&A values slightly higher. We forecast total M&A deal values to rise to US$41 billion by 2019, but remain well below 2015 values.
LATIN AMERICAN DEAL ACTIVITY CONTINUES TO SUFFER FROM THE COMMODITY PRICE SLUMP, BUT RECENT DEVELOPMENTS BOOST CONFIDENCE. M&A activity in Latin America dropped sharply in 2016 amid lower commodity prices, difficult economic conditions and fallout from Brazil’s political scandal. But with Brazil and Argentina taking steps to improve their economic policies, M&A activity in the region should remain steady in 2017, at US$70 billion. Assuming these improvements continue, we forecast the region’s M&A deals to peak at US$142 billion in 2019, dropping to US$113 billion by 2020.
GLOBAL-M_A-TRANSACTIONS-v1GLOBAL-IPO-TRANSACTIONS
Global M&A and IPO activity slowed sharply in 2016 amid heightened economic and political uncertainty.
GLOBAL M&A TRANSACTIONS
GLOBAL IPO TRANSACTIONS
EXECUTIVE SUMMARY
down-arrow-grey
Michael F. DeFranco
Koen V. Vanhaerents
Contact
top-arrow
Global M&A Outlook
Regional M&A Outlook
Sector M&A Outlook
IPO Outlook
Appendix A: Transaction Attractiveness Indicator
Appendix B: Country Forecasts
Appendix C: Methodology
M&A Transactions (US$B)
M&A Transactions (# Of Deals)
Domestic IPOs (US$M)
SUMMARY
INTRODUCTION
MACRO TRENDS
Baker-McKenzie-New-Logos
RISKS
CONCLUSION
HOME
INTERACTIVE TOOL
hamburger
HOME
MACRO TRENDS
INTERACTIVE TOOL
SUMMARY
INTRODUCTION
RISKS
CONCLUSION
FORECASTS
red-menu-arrow
red-menu-arrow
APPENDIX
FORECASTS
red-menu-arrow-v1
x-toc
APPENDIX
red-menu-arrow-v1
RETURN TO BAKERMCKENZIE.COM
white-banner-arrow-2