Welcome to the new and expanded 2017 M&A Predictor.
After a record-breaking year for M&A in 2015, it is perhaps no surprise that overall transactional activity was more subdued in 2016.
Geopolitical risks and a stricter regulatory environment both played a part in dampening appetite. Companies were also busy integrating or separating businesses following the deluge of transactions previously announced.
In terms of the transactional activity that did occur in 2016, cross-border deals remained the most resilient, in terms of both deal value and volume. Although cross-border deal value was down 3 percent compared to 2015, the drop is much smaller than the -17 percent decline in total deals. Similarly, cross-border deal volume only declined 2 percent over the same period, compared with a fall of 7 percent in total deals.
The decline in transactional activity during 2016 suggests that many businesses are adopting a ‘wait and see’ approach to their growth strategies. But this is not sustainable. Technological disruption is happening everywhere. And as our CEO Outlook Survey reveals, this is driving companies to change their business models, sometimes radically, as they recognize the need to reinvest in themselves.
This change in approach is evident in our analysis, which looks at possible trends in cross-sector deal making. There has been a lot of speculation and commentary about cross-sector deal trends. The data separates fact from fiction. The falling value of announced or completed deals overall should not lull us into complacency. Cross-sector deals are growing in number as companies look to other sectors to grow capabilities or competencies.
With increasing talk of protectionism in key markets, it will be interesting to see the impact on cross-border transactions. Will companies start looking closer to home for potential deals? We feel there is only limited capacity to do so, as buyers are frequently looking beyond their current geography or competencies to grow.
Nevertheless, M&A remains crucial for companies seeking change. Businesses need to transform more radically and much faster than is possible organically. CEOs know this, as we have seen in the CEO Outlook Survey’s findings regarding their sentiment for the next 3 years. But we expect this to be a long-term trend, rather than a short-term reaction – and one for which the top global corporates are well placed. Indeed, market capacity for M&A is predicted to rise by 17 percent in 2017, driven by healthy bottom lines and large corporate balance sheets.
We look forward to an exciting journey in 2017, as we continue to help our clients successfully balance opportunities and risk amid a rapidly changing environment.
Global Head of Deal Advisory
Managing Partner, KPMG in Germany