Global events remained turbulent and unpredictable throughout 2016 resulting in a downward effect on M&A activity, however the market remained resolute in Q4 2016, according to our latest Cross-Border M&A Index.
Buyers announced 1,429 cross-border deals worth US$388.2 billion, a 2% increase in volume and a 1% decrease in value compared to Q3 2016. Despite uncertainty surrounding the results of the US presidential election, the US was the largest acquirer of the quarter representing 31% of total deal value. Baker McKenzie's Cross-Border M&A Index, which tracks quarterly deal activity using a baseline score of 100, decreased to 249 for Q4 2016, down 1.5% from the prior quarter and down 30% from Q4 2015.
The year-on-year decline in M&A can be attributed to political and economic volatility coupled with a stricter regulatory environment, which has seen a record number of deals fail. However, strong sector performances, a rash of megadeals and increasing outbound deals from China and Japan have led to a robust, rather than a roaring, year.
Michael F. DeFranco, global head of M&A at Baker McKenzie
The increase in US outbound deal activity was lead by the largest deal of the quarter (Qualcomm's US$45.9 billion acquisition of NXP Semiconductors) and substantial private equity deals targeting Germany, with the EU accounting for 81% of North American acquisitions by value.
Regions and Sectors
All eyes were on the United States in Q4 2016 as Donald Trump was elected President, following a contentious campaign season. Despite the uncertainty surrounding the results, the US was the biggest acquirer of the quarter, spending US$121.5 billion on 299 deals.
Asia-Pacific remained a strong performer for the quarter, as buyers pursued 203 cross regional deals worth a total of US$93.9 billion. This represented 14% of volume and 24% of value for all cross-border activity in the quarter. Outbound activity from Asia-Pacific has continued to be driven by China with 92 deals valued at US$48.6 billion – up 4.5% and 25.5% respectively on Q3 2016.
Australia also made waves in Asia-Pacific this quarter, with deals in Europe and the US. It was the third-most active buyer in the region by value, with 31 deals worth a total of US$20 billion.
Industrials lead the way this quarter with 227 deals worth US$19 billion, compared with 196 deals worth US$29.1 billion in Q3 2016. Technology deals enjoyed the highest value with US$66.9 billion (up 148% year-on-year), followed by energy and utilities at US$63 billion. Half of the top ten deals of the year were in either the technology or energy and utilities sectors.
A Focus on Fast-Moving Consumer Goods
Much like the overall M&A market, the fast-moving consumer goods sector is not moving quite as fast as it did last year. Year-on-year, volume is down 17% and value 68% (although this is heavily due to the US$122.8 billion SABMiller/Inbev megadeal in 2015, which accounted for 66% of value in the sector).
Unlike a number of sectors such as pharmaceuticals or financial services, FMCG delivered a steady flow of deals, partially due to its lack of susceptibility to the regulatory and political upheavals that characterized 2016. There were 312 FMCG cross-border deals in 2016, worth a total of US$57.5 billion.
For the FMCG deal market to thrive in 2017, the sector needs to continue building on three major shifts – healthier and premium products, digitalization and global brand building. With consumers craving organic, local, additive and cruelty-free labels, healthier and premium products will continue to drive a lot of growth in FMCG M&A.
David Scott, corporate partner at Baker McKenzie
Spotlight on Mandatory Offers
The mandatory offer rule, relating to takeovers of publicly listed companies, is common across Europe and a number of other jurisdictions, including Hong Kong and Singapore. Even if not intended as such, mandatory offer requirements can serve as limited anti-takeover defenses since potential acquirers may be unwilling or unable to conduct a mandatory offer in accordance with legal requirements.
"The mandatory offer obligation may be triggered not only by the direct acquisition of shares but also by any dealing resulting in a person having an interest in securities of the relevant company," said DeFranco. "We recommend that acquirers, particularly those from jurisdictions where mandatory offers are not a feature of the regulatory landscape, such as the US, take the time to consider carefully the relevant rules before buying quoted shares."