Global M&A H1 2016 Roundup With League Tables Of Financial Advisors by MergerMarket
A few key findings include:
- An uncertain environment in 2016 caused by the UK’s referendum on European Union (EU) membership and US elections are political upheavals that have negatively impacted M&A activity, setting global M&A back 26.6% during H1 2016 with deals worth US$ 1.32tn compared to US$ 1.81tn in H1 2015, and down 66.8% versus US$ 3.98tn in H2 2015
- The build-up and announcement of Brexit sent shockwaves through the dealmaking community. The UK’s second quarter featured the country’s referendum and resulted in its Q2 value (US$ 19.3bn) crashing 50.5% from Q1 2016 (US$ 38.9bn). Firms postponed deals, cautious of the impact exchange rates and questioning what they will actually be buying into, unaware of how future negotiations will affect them. Foreign acquirers are delaying transactions, with the value of inbound deals plummeting more than half (-60.1%) from Q1 2016 (US$ 32.8bn) into Q2 2016 (US$ 13.1bn). Private equity firms are holding back from casting any confidence in the long-term UK environment – buyouts of UK companies amounted to only US$ 4.9bn, three quarters less (75.4%) than H1 2015
- US dealmaking rounded out the first half of 2016 with a rebalancing act following 2015’s record-breaking values. M&A activity totaled US$ 562.7bn across 2,242 transactions, a 31.5% drop in value and decrease in volume by 342 transactions from H1 2015 (US$ 822bn, 2,582 deals). At the same time, overall value remained 6.1% above Mergermarket’s historic average H1 total deal value (US$ 530.2bn)
Regional M&A comparison
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- An uncertain environment in 2016 caused by the UK’s referendum on European Union (EU) membership and US elections are political upheavals that have negatively impacted M&A activity, setting global M&A back 26.6% during H1 2016 with deals worth US$ 1.32tn compared to US$ 1.81tn in H1 2015, and down 66.8% versus US$ 3.98tn in H2 2015.
- The build-up and announcement of Brexit sent shockwaves through the dealmaking community. The UK’s second quarter featured the country’s referendum and resulted in its Q2 value (US$ 19.3bn) crashing 50.5% from Q1 2016 (US$ 38.9bn). Firms postponed deals, cautious of the impact exchange rates and questioning what they will actually be buying into, unaware of how future negotiations will affect them. Foreign acquirers are delaying transactions, with the value of inbound deals plummeting more than half (-60.1%) from Q1 2016 (US$ 32.8bn) into Q2 2016 (US$ 13.1bn). Private equity firms are holding back from casting any confidence in the long-term UK environment – buyouts of UK companies amounted to only US$ 4.9bn, three quarters less (75.4%) than H1 2015.
- China’s spending spree adding pressure to US and European bidders in auction processes is set to increase – the Chinese government selects which company it wants to bid for a non-Asian firm, but it will relax these regulations and allow multiple bidders if the foreign company is worth more than US$ 2bn. China has made four of its largest outbound acquisitions on Mergermarket record in 2016, buying quality over quantity – Chem China/Syngnenta (US$ 45.9bn), Tencent Holdings/Supercell Oy (84.3% for US$ 8.6bn), Anbang Insurance Group/Strategic Hotels & Resort (US$ 6.5bn) and Tianjin Tianhai Investment/Ingam Micro (US$ 6.1bn). The country has already broken all annual totals for European (US$ 75.4bn) and US (US$ 32.9bn) acquisitions, up 156.6% and 179.4%, respectively from 2015.
- German M&A rebounded as a buyer and a seller during H1 2016 after a dip in 2015. As a target, Germany attracted US$ 30.3bnworth of deals, with Industrials & Chemicals M&A (US$ 17.6bn in H1 2016, up 252.9% from H1 2015) and Chinese buyers (US$ 8.6bn) accounting for a 28.4% share, being the key drivers. The country also emerged as a keen buyer with outbound deals worth US$ 51.4bn being 90.7% above the whole of 2015 (US$ 27bn).
- European deal-makers have battled political headwinds during the first half of 2016. Uncertainty surrounding the UK’s EU referendum, as well as the US government’s clampdown on tax inversion deals have both served to slow M&A activity within the continent. As a consequence, 3,110 deals worth US$ 342.8bn marked both the lowest H1 deal value and count since 2013 (2,784 deals, US$ 335.1bn). Sellers have been forced to accept that their assets are worth less than they were a year ago, with average EBITDA multiple for acquisitions dropping to 12.3x, down from 15.0x in H1 2015.
- The run up to Brexit spooked deal-makers targeting the UK during the first half of the year. Following a record 2015, UK M&A activity during H1 recorded 638 deals worth US$ 58.2bn, its lowest deal value since 2010 (US$ 56.3bn, 504 deals). A drop in activity was seen in Q2 as the EU referendum drew closer, with US$ 19.3bn-worth of deals representing the lowest Q2 value since 2009. A decrease in valuations highlight this uncertainty, with the average EBITDA multiple for transactions dropping to 13.4x, down from 17.8x in H1 2015.
- German deal-makers are investing larger sums in US assets. During H1 2016, there were 22 deals worth US$ 12.3bn by German companies acquiring US targets, up 70.8% by value compared to the whole of 2015 (50 deals, US$ 7.2bn). Bayer’s ongoing US$ 62bn pursuit of US-based Monsanto is further evidence of this trend, and if announced in Q3, will become the largest outbound acquisition by a German company on Mergermarket record.
- High quality German assets were sought after during the first half of the year, particularly by Chinese buyers. During H1 2016, Chinese deal-makers partook in 16 deals worth US$ 8.6bn, up from just 12 deals worth US$ 393m for the whole of 2015, and overtaking all annual deal values on record. Dealmakers have been motivated by the need to pick up Western industrial technologies, as seen in Midea Group’s US$ 4.3bn acquisition of robotics maker KUKA, and China National Chemical Corporation’s US$ 1bn purchase of industrial machinery manufacturer KraussMaffei Technologies.
- US dealmaking rounded out the first half of 2016 with a rebalancing act following 2015’s record-breaking values. M&A activity totaled US$ 562.7bn across 2,242 transactions, a 31.5% drop in value and decrease in volume by 342 transactions from H1 2015 (US$ 822bn, 2,582 deals). At the same time, overall value remained 6.1% above Mergermarket’s historic average H1 total deal value (US$ 530.2bn).
- With so much uncertainty post-“Brexit”, it is unclear exactly what kind of impact the referendum’s results will have on transatlantic M&A in the coming months. According to Mergermarket intelligence, some Mid-Atlantic deal-makers believe that short-term turmoil will give way to resuming strong activity. Companies sitting on cash and signals from the Fed that interest rates will likely not rise for the time being, partially due to the referendum, have buyers ready to seize attractive targets once the dust settles.
- However, data leading up to the vote indicates that business may not continue as usual, and that the turmoil could last longer than suggested, particularly as the UK scrambles to get organized and has yet to begin negotiating its exit, let alone trade agreements. From H1 2015 (US$ 28bn) to H1 2016 (US$ 20.5bn), US outbound activity into the UK fell 27%, the largest half-year drop since H2 2010’s post-crisis peak (73%). Further, US bids for UK-based targets tumbled 51.6% between Q1 2016 (US$ 13.8bn) and Q2 2016 (US$ 6.7bn) – the vote having taken place in June. Firms looking to initiate or complete deals may be inclined to hit the pause button until post-exit negotiations commence and it becomes clearer what the environment, and available assets, might be. Inbound activity from the UK into the US also fell 62.3% from H1 2015 (US$ 15.6bn) to H1 2016 (US$ 5.9bn), the largest half-year drop since the financial crisis in H2 2008 (86.3%). Now, with the pound having dropped to a three-decade low, it seems unlikely that UK firms will be able to afford many US targets, at least in the short term.
- Energy, Mining & Utilities (EMU) was the second-ranked US sector in H1 2016. Unlike number one Pharma, Medical & Biotech (PMB), EMU saw a rise in overall value over the same period last year, mainly due to consolidations in the Utilities sub-sector. Though as a whole EMU continued to be rocked by low commodity prices, volatile markets, and decreasing electricity demand in favor of renewables, Utilities skyrocketed 252.8% over H1 2015 (US$ 6.7bn) to its second-highest overall value (US$ 23.6bn) since 2011’s peak (US$ 29.4bn). The sub-sector also hit a record volume of 28 deals. Meanwhile, Energy (US$ 63bn) and Mining (US$ 1.6bn) fell by 8.3% and 33.8%, respectively.
Central & South American M&A
- M&A in Central and South America remained stagnant in H1 2016, ending with US$ 23.8bn across 219 transactions, a 0.6% increase in value from H1 2015’s US$ 23.7bn. The first half of this year is on par with H1 2015, though the two periods are the lowest half-year values since H2 2005 (US$ 17.7bn), ranking as the fifth- and fourth-lowest H1 total values on record, respectively.
- Ongoing political woes in Brazil have been largely responsible for eroded investor confidence in the region; in May, the country’s legislature suspended President Dilma Rousseff on corruption charges. Despite this, Brazil reclaimed its position as the top country in Central and South America in H1 with a total value of US$ 10.4bn, a 40% rise over H1 2015 (US$ 7.4bn) and 88.4% higher value than second-ranked Colombia (US$ 5.5bn). Hope that interim President Michel Temer might get the country back on track has restored some confidence, though with Rousseff’s impeachment trial still underway, regional uncertainty is still expected to cast a shadow over dealmaking activity for the rest of the year.
- Global market uncertainty following “Brexit” seems unlikely to affect Central and South America, given a host of other problems confronting the region currently, such as political instability, weak currencies, and falling deal activity in general. Though inbound activity from the UK totaled US$ 667m, a 658.2% rise over H1 2015 (US$88m), it still accounted for only 2.8% of all activity in Central and South America. Likewise, though outbound activity to the UK fell 96.8% to US$ 48m from H1 2015 (US$ 1.5bn), the figure was just 0.2% of overall regional dealmaking activity.
- Inbound activity into Central and South America grew by 13.5% in H1 2016 to US$ 14.4bn over H1 2015 (US$ 12.7bn), though mostly as a result of a few large deals. Activity from Canada soared 2,611.1% to its highest value ever (US$ 6bn) – mainly due to the US$ 4.7bn acquisition of Colombia-based Isagen. Activity from China also jumped, by 460.9% to US$ 1.9bn, its second-highest H1 value since 2010’s peak (US$ 3.1bn), due largely to the US$ 1.5bn acquisition of Anglo American’s Niobium and Phosphate business in Brazil. Meanwhile, activity from the US fell 66.9% to US$ 2.6bn.
- Attractive valuations in Central and South America, partially due to low global commodity prices, aided Energy, Mining & Utilities (EMU) in becoming the period’s top sector. EMU reached US$ 10.3bn in total value, a 117.4% rise over H1 2015 (US$ 4.7bn) and 43.3% of regional market share. By value, the two aforementioned deals together accounted for 26.1% of total M&A in Central and South America. However, with such low activity overall in the region, one large deal has shown that it can really change the game.
Asia-Pacific (excl. Japan) M&A
- Following a peak in activity seen in 2015, M&A targeting the region has dropped back to 2014 levels. A total of 1,591 deals worth US$ 307.4bn were announced during H1 2016, which although representing a 29.7% decrease by value compared to H1 2015, still reached the second highest H1 on Mergermarket record (since 2001).
- In an attempt to decrease reliance on their home market, Chinese dealmakers continue to seek industrial technologies abroad. Europe has become their investment destination of choice, with 78 deals worth US$ 75.4bn accounting for 64.6% of total outbound (non Asia-Pac) deal value. Chinese companies are willing to pay a higher price for quality European assets, with average premia paid for a European listed target during H1 reaching 23.5%, up from 13.5% in 2015.
- Taiwan has experienced an uptick in M&A deal value due to its highly attractive semi-conductor assets. The top four deals targeting the country in H1 2016 all took place within the semi-conductor space, including the highest valued deal of Q2: Netherlands-based ASML Holding’s acquisition of Hermes Microvision for US$ 2.8bn. With eight deals worth US$ 7.3bn announced, M&A targeting the country’s renowned Technology sector accounted for 87.0% of total deal value targeting the country, up 87.3% compared to FY 2015 (19 deals, US$ 3.9bn) to reach its highest half-year deal value on record.
- Consolidation amongst Chinese companies has driven M&A activity within Asia-Pacific (excl. Japan)’s Media sector, resulting in an alltime high H1 deal value, with 49 deals worth US$ 16.0bn announced. As a result, deal value reached its second largest half-year total on record following H2 2015 (US$ 19.3bn). Chinese domestic media dealmaking (24 deals, US$ 12.5bn) accounted for 78.4% of the total value, as companies seek to compete on the global stage. This deal value was heavily influenced by Wanda Cinema Line’s US$ 5.7bn acquisition of Wanda Media, allowing the company to expand its reach into the film production sector.
- President Abe’s election campaign, with its focus on boosting the economy, seems to be creating returns for Japanese dealmakers. With 195 deals worth US$ 30.7bn announced during H1 2016, Japan’s M&A deal value reached its largest H1 deal value since 2012 (US$ 40.4bn), increasing 67.8% compared to H1 2015. As a result, average deal size rose to US$ 251.6m, marking its highest since 2012 (US$ 328.1m).
- A surge in consolidation between Japanese companies is driving M&A activity, as businesses snap up the less efficient within a crowded market. During H1 2016, 175 domestic deals worth US$ 27.2bn represented a 93.4% increase by value compared to H1 2015 (US$ 14.0bn), despite accounting for 29 fewer deals. A surge in big-ticket deals has fuelled the rise, with six domestic deals over US$ 1bn recorded, compared to just three in H1 2015.
- Following an impressive 2015 for overseas deal activity, Japan’s outbound M&A has slowed during the first half of 2016, with 125 deals worth US$ 16.1bn dropping 70.7% by value compared to H1 2015 (US$ 55.1bn), its lowest half-year value since H1 2013 (US$ 12.8bn). The size of deals has shrunk dramatically, with just four outbound deals over US$ 1bn announced in H1 2016, compared to 14 during the same period in 2015.
- This drop in outbound activity has been felt most acutely within the Financial Services industry, which proved 2015’s most targeted sector by Japanese investors. In terms of Japan’s overseas M&A activity, the industry saw 27 deals worth US$ 34.8bn during 2015, marking its highest annual total on record. However a fall in activity was seen in H1 2016, with just US$ 1.3bn-worth of deals representing a substantial 92% drop in value compared to H1 2015, and its lowest half year value since H2 2009 (US$ 409m).
Africa & Middle Eastern M&A
- As a result of a few big-ticket deals, H1 deal value (174 deals, US$ 26.8bn) stormed 50.8% ahead of H1 2015 (244 deals, US$ 17.8bn), despite accounting for 70 fewer deals. The size of deals taking place within the region is increasing, with an average deal size of US$ 219.3m up compared to US$ 163.3m in 2015, reaching its highest value since 2013 (US$ 229.2m).
- Energy, Mining & Utilities M&A continues to feel the effects of volatile commodity prices seen over the past year. Despite China Molybdenum’s US$ 2.7bn acquisition of a 56% stake in Congo-based Tenke Fungurume Mining bolstering Chinese activity (three deals, US$ 4.0bn), an uptick in the number of deals has not been seen. With just 18 deals announced, deal volume within the sector saw its lowest H1 performance since 2003 (nine deals).
- As part of a global M&A strategy of picking up valuable assets abroad, Chinese dealmakers are investing in high valued transactions within the region. With seven deals worth US$ 4.5bn announced, H1 2016 has already overtaken 2015’s total annual value (US$ 1.9bn) by 139.2%. This surge in activity has overtaken all annual values since 2013 US$ 9.0bn), and stands just three deals away from 2015’s record-breaking total deal volume.
- M&A targeting the Consumer sector has gathered pace within the region, driven by M&A within the food sub-sector. During H1 2016, 16 deals worth US$ 10.4bn targeting the sub-sector has overtaken all annual deal values on record. According to Mergermarket intelligence, a change in eating habits, such as an increase in dining out and ordering takeaways, has led to a rapid expansion and a wave of M&A within the food industry.
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