After a flurry of megadeals in the second half of 2015 pushed global M&A deal values to the highest they've been since 2007, deal making slowed substantially in 2016 amid major economic and political uncertainty in several key economies. M&A transactions fell 17% by value in 2016, and would have fallen further if not for the conclusion of several long-running negotiations, such as Anheuser-Busch InBev's takeover of SAB Miller, which required regulatory clearance in the US, EU, China, Australia and South Africa. Meanwhile, IPO transactions fell by 36% as companies delayed listing amid heightened volatility in financial markets.
This slowdown raises key questions for investors: When will the global economic outlook become more certain? What impact will the new US administration have on deal appetite? And if we do experience a disorderly Brexit, re-ignition of the Eurozone crisis, or more severe slowdown in the Chinese economy, how will this impact global transactions?
This report, our second annual Global Transactions Forecast, seeks to answer these questions by examining the macroeconomic, financial and structural factors that underpin M&A and IPO activity. By providing this outlook, we aim to provide corporate leaders and investors with a better sense of the macroeconomic environment they are likely to face in the next four years so they can make more informed investment decisions.
We are clearly still in volatile times but deal-making is there to be done. Strong corporate balance sheets, cheap finance and moderate growth across markets and key sectors all point to an improving M&A run-rate later in 2017, after a cautious first quarter, and a significant uptick in 2018. The caveat is we need a benign Trump on trade and a soft-ish Brexit. Will we get that? Let's see.
Paul Rawlinson, Baker McKenzie's Global Chair
We have also developed the Global Transactions Forecast Interactive Tool to complement the report. This forward-looking analysis tool enables users to assess the forecast under five scenarios that would impact global M&A and IPO activity, view forecasts by country, year and transaction type, and create side-by-side country comparisons.
Sector Outlook: Analyzing Key Growth Drivers
From a sector perspective, a key driver of global deals will be the tech sector, where M&A is forecast to reach US$415 billion by 2018 — the highest since 2000. We expect a similar uptick in IPO activity led by Snapchat's mooted IPO. If Snapchat's IPO is successful, it would be the largest US-listed technology offering since Alibaba Group's IPO in 2014.
Healthcare, particularly biotech and pharma deals, will also fuel the upturn amid greater innovation, less anticipated regulatory intervention in the US and an increased role for private health providers in supplying public health services.
Deal making in the finance and consumer goods sectors will drop slightly in 2017 before rebounding in 2018. For finance, tech innovation and consolidation in Europe's banking industry is likely to boost M&A while the consumer goods sector continues to reap the benefits of cheaper energy and major growth in consumer spending. Deals in the energy sector will only modestly recover in the next few years as oil prices gradually rise. However, 2017 could potentially see the listing of Saudi oil giant Aramco in what would be the biggest IPO in history.
We base our forecast on the anticipation that EU and UK officials make progress on establishing a new relationship in 2017, and that the new US administration adopts a less protectionist stance on international trade and immigration policy, while setting out plans for fiscal stimulus. Also assuming that China continues to manage its economic slowdown and the Eurozone continues its economic recovery, we anticipate that financial markets will continue to hit new highs and investor confidence will rise.
Alongside this renewed market activity and investor confidence, global deal making has the potential to rebound in the coming years, given the massive cash reserves sitting on corporate balance sheets and near-record levels of private equity dry powder. Barring further shocks to confidence, investors will have the firepower they need to pursue acquisitions, and their apprehension will gradually turn into appetite.
In addition to our global forecasts, we also created projections for total M&A and IPO deal values and volume across 37 countries. These forecasts not only look at future transactional activity, but also take an in-depth look at the countries' economies, key financial drivers and the attractiveness of a country's current investment environment.