• Cross-border M&A value rose by 14 percent in Q1 2016 versus Q1 2015, although deal volume fell 10 percent
  • Chinese outbound M&A hit a record USD83.2 billion for an individual quarter
  • Inbound Middle East M&A value doubled that of Q4 2015
  • UAE featured in 4 of the top 5 outbound Middle East deals

The first quarter of 2016 has seen global cross-regional M&A activity continue apace from its record breaking 2015, with the Middle East remaining busy, according to our quarterly Cross-Border M&A Index*.

The Index reveals that despite a turbulent quarter for the global economy and capital markets see-sawing amid volatile risk asset sentiment, cross-border M&A proved surprisingly resilient. In the first quarter of 2016, cross-border M&A value rose to USD324 billion, 14 percent higher than the first quarter of last year, while volume dropped 10 percent to 1,202 deals. The economic slowdown in China, the UK’s potential exit from the EU, volatile equities markets and the fall in commodities prices all contributed to the decline in volume.

Both value and volume globally were down significantly on Q4 2015, as expected given it was the busiest quarter of a record year for M&A. Baker McKenzie’s Cross-Border M&A Index, which tracks quarterly deal activity using a baseline score of 100, dropped to 213 from its peak of 358 last quarter. However, it was still seven points higher than the same period last year.

Notably, the majority of all global M&A transactions in the first quarter have been cross-border, comprising 53 percent of value, well ahead of the 39 percent level seen in 2015 and the prior annual record of 43 percent seen in 2014. The most active sector by volume was Industrials with 194 deals in the quarter while Healthcare led the field by value with 92 deals worth USD54 billion. China's outbound M&A hit USD83.2 billion from 84 deals, a record value figure by Chinese acquirers for a single quarter, hoisting overall cross-border deal value for the quarter.

Although the Middle East Index dropped from its Q4 2015 record of 546.5 to 140.8 in Q1 2016, the cross-regional deal count remained steady, and the value of inbound M&A in Q1 2016 more than doubled that of Q4 2015, reaching USD 2.5 billion.

"Despite an initial pause for breath after a record-breaking 2015 for cross-border M&A deals regionally and globally, Q1 2016 has continued to be very busy across the Middle East," said Will Seivewright, Corporate/M&A partner at Baker McKenzie Habib Al Mulla, based in the UAE. "Developed markets are proving to be safe havens for Middle East acquirers, and similarly, the Middle East region remains attractive to cash rich international investors. Given the current healthy pipeline of both M&A and private equity related deal activity, we expect this trend to continue into the next quarter."

"Volatile capital markets, uncertainty of Chinese growth potential and political developments in the EU may have led investors to be more cautious at the start of the year, added George Sayen, Head of Corporate Practice Group at Baker McKenzie's associated firm in Riyadh. "However, rebounding markets led to a significant increase in cross-regional M&A activity in the Middle East by the end of Q1 2016 and the coming months are likely to see this continue."

Inbound Middle East M&A

Cross-regional deals targeting the Middle East in Q1 2016 totaled 17 deals valued at USD2.5 billion, compared to 19 deals at USD1.2 billion in Q4 2015. The USD292 million acquisition of souq.com was the highest valued cross-regional deal targeting the UAE.

The Consumer (Foods) sector was the biggest by deal value in Q1 2016 at USD 837 million, while the Computer Software sector continued its Q4 2015 lead by volume, with five deals valued at USD 259 million.

Outbound Middle East M&A

Cross-regional deals fueled by the Middle East totaled 23 deals valued at USD1.1 billion in Q1 2016, with the acquisitive UAE driving four of the top five outbound deals, including Network International's acquisition of Emerging Markets Payments Group, Abraaj Capital Holding's acquisition of a 72 percent stake in Quality Care India, and Al Habtoor Group's acquisition of Hilton London Wembley Hotel.

South Africa was the top target country by value, followed by the USA and India, while the USA remained the top target country by deal volume, followed the UK and Turkey.

The top sector for outbound M&A by value was the Services sector with four deals valued at USD364 million, while the Leisure sector led by volume with five deals valued at USD298 million.

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