In 2018, merger and acquisition (M&A) transactions will rise to $3.2 billion dollars, according to international law firm Baker McKenzie, which recently published the third edition of its Global Transactions Forecast in collaboration with Oxford Economics. According to these forecasts, which cover the period 2018-2020, there should be a peak next year globally, as well as in France, where M&A activity will increase by 40%, totalling $56.5 billion. At the same time, initial public offerings (IPO) should total $220 billion worldwide. Things are expected to return to normal progressively during the 2019-2020 period.
Private equity appears to be one of the levers of this growth, with M&A transactions involving private equity having increased from less than 5% in 2005 to more than 25% in 2015. By 2020, as much as one third of all M&A operations could involve private equity. IPO transactions involving private equity should follow the same trend between now and 2020, having reached a spike of 40% in 2014.
From a sector point of view, this increase should be driven by finance and consumer goods, which, for M&A transactions, should reach $616 and $633 billion respectively in 2018, compared to $462 and $543 billion in 2017. In terms of IPO, the financial sector should retain its significant position in 2018, with a total of $83.9 billion, compared to $51.1 billion in 2017, an increase of 64%. The financial sector should be followed by the consumer goods sector ($59.8 billion) and the industrial sector ($55.9 billion).
A MORE FAVOURABLE POLITICAL AND MACROECONOMIC ENVIRONMENT THAN IN 2017
These optimistic forecasts can be explained by the political climate, which should become quieter by 2018. Furthermore, macroeconomic trends observed during the second half of 2017, which should continue into next year, will be particularly encouraging for businesses. Indeed, the study foresees a rise in investor confidence, but also the return of low cost financing opportunities, particularly in emerging countries.
Although these trends should be observed in all the grobal regions, this cyclical peak in activity should first be seen in Europe and North America starting in 2018, before moving on to Asia, Latin America, the Middle East and Africa during 2019.
In Europe, M&A operations during the period 2018-2020 will peak at $856 billion in 2018, up 34% compared to last year. The forecast also foresees a significant rise in IPO activity in Europe, which should amount to $60 billion in 2018, compared to $38 billion in 2017.
The improvement of the European labour market environment, the increase in intra-European commerce and the resumption of investments are all factors that will contribute to this increase. From a political point of view, the defeat of the populist candidates in France and in the Netherlands as well as the easing of concerns linked to Brexit have contributed to stabilising the economic situation on the continent. However, the next stage in the negotiations and the receding optimism with regard to a “soft Brexit” still constitute a potential threat for Europe.
M&A activity in Europe for the period 2011-2020 (forecasts from 2016 onwards)
IMPROVEMENT IN THE AMERICAN MARKET DESPITE THE THREAT OF PROTECTIONISM
In the United States, the protectionist measures expected from the Trump administration have so far targeted only specific sectors or businesses, without affecting the economy as a whole, which has made it possible to reassure markets such as China or Mexico.
Apart from these regulatory aspects, the American economy is doing well in general. The labour market is still dynamic and can support American consumption, whilst the low level of the dollar has enabled American exports to become competitive once again and is encouraging investments. This favourable economic climate has led to growth forecasts of around 2.5% for 2018.
According to the study, the value of the M&A activities in the United States should reach a peak of $1.5 billion in 2018 – $200 billion more than in 2017. This increase should be driven by domestic operations, heightened supervision of Chinese acquisitions in the United States by the American authorities leading to a decrease in cross border M&A in 2018.
Concerning IPOs, the North American market did particularly well in 2017, with large scale operations such as the Snap flotation for $3 billion. The report foresees an increase in these operations to reach an unprecedented amount of $78 billion in 2018, in part following investor concern over the level of indebtedness of businesses.
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