Global dealmakers are regaining their appetite for investment amid the easing of key economic and political risks and the emergence of positive macroeconomic deal drivers. As a result, we expect global deal activity to accelerate into 2018.

This is according to our latest Global Transactions Forecast, which predicts that total global M&A will rise to a peak of US$3.2 trillion in 2018, with IPO value improving by more than 50 per cent year-on-year to nearly $290 billion.

Following this upswing, both M&A and IPO values will drop in 2019 and 2020 as global GDP, trade and investment growth slows, borrowing costs rise in key economies, and stock market valuations start to look stretched. In emerging economies, we forecast activity to peak a year later in 2019, followed by a cyclical downswing.

Paul Rawlinson, Global Chair, said:

After a few soft patches in 2017 we have a more optimistic outlook for the global economy and dealmaking in 2018, as long as the brakes are not put any further on global free trade. We see an uplift in both M&A and IPO activity as dealmakers and investors gain greater confidence in the business prospects of acquisition targets and newly-listed businesses.

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M&A Outlook 
M&A accelerated in the consumer, energy and basic materials sectors in 2017, bolstered by megadeals. In the consumer sector, our forecast assumes the proposed US$42.5 billion merger between Essilor and Luxottica closes in 2017. Given the potential for stronger global consumer spending in 2018, we expect even more dealmaking in the consumer sector next year, rising to US$633 billion, along with finance, which we forecast to reach US$616 billion.

In energy, the largest deals in 2017 were General Electric’s acquisition of Baker Hughes for US$32 billion and the US$21 billion merger between Energy Transfer Partners and Sunoco. Vale’s US$21 billion merger with Valepar was the largest deal in basic materials sector. In both sectors, we forecast a gradual slowdown in the years ahead, as weaker growth in commodity demand in emerging markets such as China undermines the outlook for global prices and investment.

On the downside, pharma and healthcare underperformed in 2017, possibly as a result of uncertainty about US healthcare policy. Going forward, however, longer-term trends such as aging and demographics should drive higher levels of dealmaking.

M&A activity in the tech sector also dropped in 2017, yielding deal values of US$295 billion. But several trends of embedding new technology across sectors, plus activist investment in tech firms by emerging markets such as China and Saudi Arabia, suggest that deal values will rebound in the next two years.

IPO Outlook
From a sectoral perspective, tech and telecom is expected to drive the rebound in IPO activity in 2018, aided by the Chinese government’s efforts to spur tech firms to go public. With household spending remaining strong globally, consumer companies should also benefit from positive market conditions. Likewise, with low interest rates likely to support household and corporate borrowing in the next few years, finance issues should also drive IPO activity higher.

North America
Dealmaking in the US is set to rebound in 2018 after a year of “wait and see” following the election of President Trump in November 2016. Because his trade policies have proven less radical than his campaign pledges and US economic fundamentals have remained strong, we forecast M&A activity to pick up to US$1.5 trillion in 2018 – US$200 billion higher than 2017 – before dropping in 2019 and 2020. With elevated stock market valuations and a buoyant economy, we expect domestic IPOs to reach an all-time high of US$78 billion in 2018, easing in subsequent years.

Repeated defeats for populist politicians have boosted business and investor confidence as the Eurozone recovery has quickened and become more self-sustaining. Based on these strengths, and with Brexit not yet denting dealmaking confidence, we forecast total M&A to reach US$856 billion in 2018, then drop in line with an economic slowdown in the following years. Domestic IPO markets have been resilient amid recent political uncertainty and we expect proceeds to continue rising in 2018, to a cyclical peak of US$60 billion.

Asia Pacific
The Chinese government’s restrictions on outbound investment slowed regional M&A activity in 2017. But with the macroeconomic policy case for such measures easing and China’s more outward-looking policy agenda requiring greater outbound investment, we forecast the region's M&A activity to peak at US$754 billion in 2019. Total IPO activity is also forecast to pick up, to a peak of US$120 billion in 2019, with Hong Kong remaining the global leader in cross-border listings.

Latin America, Africa and the Middle East
More stable commodity prices and financial conditions are creating steadier transaction environments in both regions. In 2019 we forecast M&A activity to reach a peak of US$134 billion in Latin America and US$41 billion in Africa and the Middle East. In both regions, we forecast IPO issuance to continue rebounding, rising to a cyclical peak in 2019 of US$7 billion in Africa and the Middle East, and US$7.5 billion in Latin America.

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