M&A Predictor trend analysis | KPMG | BE

M&A Predictor trend analysis

M&A Predictor trend analysis

The total value of deals remains extremely healthy compared to previous years.

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Trend analysis

The total value of deals, remains extremely healthy compared to previous years. In fact, the value of completed deals exceeded by some margin the value of deals completed in 2009-2013, despite the number of deals being fewer.

The average deal value declined slightly in 2016 to US$105 million, down from a 2015 peak of US$119 million. However, this is significantly above the 2009-2013 range of US$64 million to US$78 million.

Global predicted appetite is projected to marginally increase during 2017, driven by flat market capitalizations and modest net profit growth. Predicted capacity is also projected to go up over the same period by a healthy 17 percent, thanks to a decline in net debt and growth in EBITDA.

Latin America, and the Africa and Middle East regions are jointly the biggest climbers in terms of predicted appetite, up 7 percent almost completely because of rising market capitalizations. ASPAC (others) is the standout region for predicted capacity, at 22 percent. All other regions were showing healthy increases ranging from 10 percent to 18 percent.

Cross-border deals

Like the global trend, the number of cross-border deals fell back to 2012-2014 levels. The overall value of cross-border deals, however, reached their highest level since 2007, at US$1.3 trillion. This represents 35 percent of the value of all deals globally and is 5 percent higher than 2011.

The proportion of cross-border deals has remained relatively steady over the last 8 years, ranging between 22 percent and 24 percent. The average size of cross-border deals, however, has risen significantly over the last 3 years to US$149 million. This is its second highest level in 10 years, and compares to an average cross-sector deal value of between US$40 to US$60 million over the last 5 years.

Companies in Asia and Europe continue to be acquisitive. Supported by China’s “going out” policy of encouraging outbound investment, Chinese companies have helped to drive M&A in 2015 and 2016. However, increasing protectionist rhetoric in certain countries, the new Trump Administration, Brexit and upcoming elections in Europe are creating uncertainty. China National Chemical Corp.'s US$43 billion takeover of Switzerland's Syngenta AG has recently been approved by the Committee on Foreign Investment in the United States (CFIUS), and is awaiting European regulators' approval. Leading into 2017, Chinese outbound activity is facing increased oversight by Beijing, targeting deals considered “non-core” or “speculative”.

Globally, increased uncertainty around international trade policy may impact M&A in the near-term, however, the long-term outlook remains positive for increased cross-border activity.

Cross-sector deals

The percentage of cross-sector deals in terms of the total number of deals has been steadily rising from the low-30s in 2006 to 43 percent of all deals in 2015 and 2016. The value of cross-sector deals has wavered slightly, but has also seen an increase to 24 percent of total deal value in 2016, a 2 percent increase over 2015.

The average deal size of cross-sector deals is generally smaller, at around 50 percent of the average size of all deals and about one-third the size of the average cross-border deal. Most cross-sector deals are commonly seen as bolt-ons to new or existing capabilities.

China and the United States were the dominant players, with 16 of the top 25 cross-sector deals involving bidders from these countries. Cross-sector deals tended not to be cross border. Among the top 25, 16 deals were domestic. This is especially true for the dominant cross-sector countries: 5 out of 7 Chinese deals and 8 US deals were domestic.

In terms of acquisition targets, the United States leads the pack with 11 of the top 25 cross-sector deals by target, followed by China with 5 deals.

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