Merger and acquisition activity last year was on a roll, and it looks like the momentum will carry over into the first quarter of this year. However, there’s still a great deal of macroeconomic uncertainty right now, and M&A dealmakers seem to be understandable cautious.
M&A momentum carries over
Intralinks published its quarterly Deal Flow Predictor overnight, providing some updated numbers and highlighting the current trends in the M&A market. During the fourth quarter, the firm found an 8.1% increase in early stage activity, which marked an acceleration from the 5.2% increase seen in the third quarter.
Three of four regions saw an acceleration in M&A activity, with Latin America being the only exception. North America saw a 5.4% increase, an acceleration from the 3.2% increase seen in the third quarter. Asia became a hotbed for dealmakers with a 9.8% increase during the third quarter, marking a significant increase from the 1.8% growth rate in the previous quarter. Europe, the Middle East and Africa saw an 11% increase, which was close to the 10.4% rate observed in the third quarter.
Carlson Capital's Double Black Diamond Fund posted a return of 3.3% net of fees in August, according to a copy of the fund's letter, which ValueWalk has been able to review. Q3 2021 hedge fund letters, conferences and more Following this performance, for the year to the end of August, the fund has produced a Read More
In Latin America, Intralinks saw a 7.4% increase in early-stage M&A deals, although that was up against a very tough comparable of the previous quarter’s 48.6% increase.
Dealmakers still somewhat calm
During the fourth quarter, it seems dealmakers quickly moved past their worries about interest rates, China’s economic slowdown, and the slowing global and U.S. economies, resulting in the increase in activity. Intralinks cites a number of reasons they moved ahead with their M&A plans in spite of these concerns.
For example, there wasn’t much of a market reaction to the Federal Reserve’s interest rate hike. Further, the firm said dealmakers seem more focused on the future as the International Monetary Fund projects an increase of 0.3 percentage points in global economic growth, bringing it to 3.4%–an acceleration from the 3.1% growth observed last year.
Megadeals to come to a halt
The firm also saw a sudden increase in transactions worth more than $10 billion last year, which they call “megadeals,” particularly during the fourth quarter. Intralinks’ analysts believe this is indicative of continued confidence in dealmaking and “animal spirits.”
Thomson Reuters data indicates that the total value of announced deals reached a new high of $4.8 trillion last year, representing a massive 43% year over year growth rate and beating the previous high of $4.1 trillion, which was in 2007 right before the financial crisis. (Is it any wonder so many investors are expecting a recession very soon?) It must be noted though that as of now, there aren’t any signs of a recession within the M&A market yet.
The number of M&A deals announced in 2015 increased by nearly 8% year over year to a little more than 45,500 deals, which matches up with the range Intralinks gave six months ago, although it came up a bit short of the record set in 2007.
The firm’s analysts believe there are a number of reasons for the sudden increase in deal activity. For one thing, corporations are having a hard time generating enough organic growth to please investors, so they’re seeking growth through acquisitions. Further, they’ve been taking advantage of the historically low interest rates and easily obtained debt financing in order to fund these deals. Intralinks analysts also said they saw a “‘me too’ effect,” in which one player does a deal, and then others in the space do as well.
What to expect in the M&A market
Intralinks analysts also gave their predictions for the M&A market over the first half of this year. They’re projecting only modest year over year growth in announced M&A deals in the first half of this year. The midpoint of their projection is 3.5% growth.
In Europe, the middle East and Africa, they expect M&A activity to remain strong due to quantitative easing by the central bank and recovering economies, while in North America they’re looking for only a modest increase amid caution on interest rates and steady economic growth paired with lower material and energy costs. In the Asia Pacific region, they expect China to have a major impact as policymakers continue trying to support stock prices and the renminbi continues to weaken as the economy slows.
See the full report here – PW 20-1-16 edit of Intralinks DFP Q4 2015_January 19_Final