Dealmakers in North America have hit the pause button on M&A activity as uncertainty hovers due to unknowns relating to the presidential election, interest rates and the slowdown in economic growth. The results of Intralinks’ latest quarterly Deal Flow Predictor show a recovery in other regions, however. In fact, the recovery in other parts of the world is significant, but the slowdown in North America was so large that it mostly offset that recovery.
Global M&A activity ticked up in Q2
According to the Intralinks Deal Flow Predictor, early-stage merger & acquisition deal activity ticked upward 1.2% year over year during the second quarter. This marks a recovery from the 1% decline required in the first quarter, but hiding behind this global recovery is a story of continuing weakness in North America.
Intralinks tracks early-stage M&A activity including sell-side transactions that are in either the preparation or due diligence stage based on announcements about pending activities.
The firm found that early-stage M&A activity in Europe, the Middle East and Africa increased 15.7% in the first quarter, while activity in Latin America grew 10.7%. However, early-stage activity in North America slumped 11.2%, marking the second consecutive quarter in which the region recorded a decline in M&A activity. The Asia Pacific region saw a much smaller 0.4% decline in the second quarter.
M&A activity to grow slightly in 2016
Intralinks notes that global M&A activity in the first quarter slowed down significantly year over year. However, the firm still expects growth by the end of the year. Intralinks predicts that the number of announced deals all this year will be up “slightly” year over year. The midpoint of the firm’s forecast for fiscal 2016 is for a growth rate of 0.9%.
In fiscal 2015, global M&A activities increased 8.2%, while in 2015, the number of deals increased 10.8%, putting this year’s deceleration into perspective.
Dealmakers starting to see that stimulus isn’t working
Philip Whitchelo, VP of Strategy and Product Marketing at Intralinks, notes that the strength in 2014 and 2015 suggested that the markets were on the brink of a fresh bull cycle for the M&A market. However, he suggests that dealmakers may now be realizing that even though we’re seven years past the global financial crisis, years of “unconventional monetary stimulus by most of the world’s central banks following the 2007-08 crisis appear to have been mostly ineffective in creating a broad-based and sustainable global economic recovery.
He pointed out that although inflation measures and global interest rates sit at record lows, the global economy continues to struggle to pick up momentum. Stimulus thus far doesn’t appear to have been effective in both raising asset prices and stimulating M& activity. He added that growth is still faltering in advanced economies, while growth in emerging economies is still “below potential” because many of them depend on growth in advanced economies.
Read the full report below.