Economic and political uncertainty in key global markets has continued the slowdown in cross-border M&A activity, according to Baker & McKenzie's Cross-Border M&A Index for the second quarter of 2016.
Buyers announced 1,320 cross-border deals worth US$214bn in Q2, a 4% drop in volume and a 45% drop in value compared to Q2 2015. As a result, Baker & McKenzie’s Cross-Border M&A Index, which tracks quarterly deal activity using a baseline score of 100, dropped to 176 for Q2 2016, down 17% from the prior quarter and off 33% from Q2 2015.
"After a record year in 2015, there's no question that Brexit, political uncertainty in the US and elsewhere, a subdued macroeconomic environment globally and other factors have weighed on deal makers' confidence," said Michael DeFranco, Chair of Baker & McKenzie's Global M&A Practice. "Even with this though, we continue to see high volumes of deals -- just fewer of the mega transactions -- and many multinationals are continuing to make acquisitions in support of their long-term strategies."
The total value of cross-border megadeals – those above US$5bn in value – fell significantly in the first half of the year. While there were 21 megadeals struck in the first half of 2015 with a total value of US$296bn, the 18 thus far in 2016 are worth 23% less at US$228bn, and only three of those occurred in Q2 2016 (worth US$29bn).
In a continuation of a trend identified in the Q1 2016 Baker & McKenzie Index and the Firm's report on 2015 Chinese outbound investment, Chinese bidders continue to drive values in cross-border M&A this year. China was a big spender: its 97 outbound deals in Q2 were worth US$40.7bn – 23% and 132% higher than the same period in 2015. The focus was on investments in technology (15 deals worth US$17bn) and industrials (17 deals worth US$4.8bn). The growing importance of Chinese outbound M&A is highlighted by the fact that while in Q2 2011 Chinese M&A accounted for only 1.1% of the global total, in this most recent quarter this proportion had risen to 6%.
"We continue to see activity from Chinese buyers shine in this turbulent market," added DeFranco. "I suspect that Chinese outbound M&A will be a driving factor for M&A in the year ahead and be a key part of global transactional activity."
Regions and Sectors
North America was the largest cross-regional outbound market by volume, with 263 outbound deals worth US$38.5bn and 67% of those targeting the EU. Asia Pacific, while not as acquisitive with 188 deals, spent US$50.5bn on cross-regional deals. Its main target was also the EU, spending US$29bn across 96 deals.
Baker & McKenzie's Cross-Border M&A Index showed some noteworthy activity in the Middle East during the first half of 2016. Inbound cross-border deals targeting the Middle East remained steady following a record H1 2015, hitting US$5.6bn from 20 deals. Outbound deals set a new record in 2015, with US$32.9bn on the back of 83 deals – the highest value of any year covered by the index (which goes back to 2009).
Industrials (199 deals), technology (182 deals) and business services (172 deals) topped the volume charts for Q2. Cross-border M&A in the mining sector remained stable for the first half of 2016 with 38 deals worth US$8.1bn, despite concerns about weak commodity prices. Although volume is down slightly on H1 2015, during which there were 40 deals worth US$7.1bn, values have shown improvement, and the sector remains on track for another solid year.
For more information on Baker & McKenzie's Cross-Border M&A Index, please see: http://crossbordermaindex.bakermckenzie.com/.