M&A Predictor - Overview

M&A Predictor - Overview

Overall, the volume and value of M&A transactions in 2016 is down on the record highs achieved in 2015. Nevertheless, 2016 activity levels remain robust in comparison with pre-2015 levels and cross-border deals remain very healthy.

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Overall, the volume and value of M&A transactions in 2016 is down on the record highs achieved in 2015. Nevertheless, 2016 activity levels remain robust in comparison with pre-2015 levels and cross-border deals remain very healthy.

The top 100 global deals are dominated by the United States, led by the pending US$85.4 million takeover of Time Warner by AT&T. In total, the United States accounted for 54 of the top 100 deals in terms of target, and 39 of the top 100 in terms of bidder.

Fifty percent of the top 50 cross-border deals also involved targets in the United States, but bidders were more evenly spread, with deals originating from many different countries.

Trend analysis

The volume of announced and completed deals in 2016 to date (YTD) saw a return to the levels seen in 2012-2013. The value of deals, however, is disproportionately high compared to previous years. In fact, the value of completed deals exceeded by some margin the value of deals completed in 2009-2014, despite the number of deals being fewer. Values may even eclipse 2015 once the full year’s data is available.

This suggests that although fewer deals are happening, the ones that do proceed tend to be higher value. The announced deals value in 2016 YTD also exceeded the 2008-2013 year-end totals.

Cross-sector deals crossed the tipping point this year. Cross-sector transactions accounted for over 50% of all announced deals globally (18,660 of 36,815 deals), following a steady increase from 45% of deals in 2011.

The value of completed cross-sector transactions in 2016 YTD has already surpassed 2014, despite the number of completed deals being 15% lower (13,706 compared to 16,046).

The proportion of cross-border deals remains relatively steady between 28%-30% over the last 5 years.

Completed deal values for cross-border deals reached their highest level since at least 2009, at US$1,136.5 billion. This represents 42% of the value of all deals globally and is 14% higher than 2011, compared to arise on global deal values of only 11% since 2011.

At a macro level, the data suggests that looking back over the past 5 years, the proportion of cross-sector deals is growing, but the value is staying steady.

It is the opposite picture for cross-border deals, however, where the number of transactions is flat-lining at best, whereas the value of deals is at a record high.

Global predicted appetite is projected to go down in the first 6 months of 2017, but only marginally compared to the latter half of 2016, driven by flat market capitalizations and modest net profit growth. However, predicted capacity is projected to go up a healthy 12% over the same period, thanks to a decline in net debt and growth in EBITDA.

Latin America is the biggest climber in terms of predicted appetite, up 17%, almost completely because of rising market capitalizations. ASPAC (others) is the standout region for predicted capacity, at 21%.

Cross-border deals

The value of completed cross-border deals in 2016 YTD reached an 8-year high as companies sought to complete the huge surge of deals from 2015.

Like the global trend, the volume of cross-border deals fell back to 2012-2014 levels, although total deals values are considerably higher – and average deal values are also higher - than the corresponding figures from that period. Is one of the reasons for the decline in deal volumes the fact that companies are still digesting what they bought last year?

Cross Sector deals

Over a 5-year period, the volume of announced cross-sector transactions appears to be holding up better than total announced deal volumes and cross-border deal volumes. The volume of announced cross-sector deals completed in 2016 YTD was only 2% down on 2011, compared to total deals (12% down) and cross-border deals (16% down).

However, compared to volume of announced deals, the value of cross-sector announced deals has dropped 7% over the last 5 years. This compares to a 16% and 20% increase in the value of total deals and cross-border deals respectively.

Cross-sector deals also accounted for a larger proportion of total deals in 2016, at 50% compared to 46% in 2011. Is this where the money is going for 2017, as companies seek to transform their business models by seeking growth in other markets?

The average deal value for cross-sector deals appears to be a lot lower than for cross-border transactions Is this because cross-sector deals are more likely to be tactical bolt-ons, as opposed to strategic acquisitions? What other differences in cross border vs cross sector deals could explain this?

China is the dominant player, with 11 of the top 25 cross-sector deals involving bidders in China. Overall, half of those (7 of 11) are transactions within China.

In terms of acquisition targets, China again leads the pack, together with the United States. Both countries accounted for 7 of the top 25 cross-sector deals by target.

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