Global dealmaking will continue to slow down in 2020 because of ongoing worldwide economic uncertainty and the risk of global recession, according to a new report by Baker McKenzie.
The firm’s fifth annual Global Transactions Forecast, jointly released with Oxford Economics, projects that mergers and acquisitions (M&A) will decline globally from USD 2.8 trillion in 2019 to USD 2.1 trillion in 2020. The forecast also predicts a downward trend in IPO proceeds from an estimated USD 152 billion in 2019 to USD 116 billion, a 23% drop.
India M&A to remain stable despite slowdown
India dealmaking activity is expected to revert to the 'normal' level in 2019, with total M&A reaching USD 52.1 billion. Highly notable was Canada's Brookfield Infrastructure Partners' USD 3.66 billion investment to acquire Reliance Industries’ Reliance Jio lnfratel unit. Announced in July, the acquisition was touted as the single biggest private equity deal ever in India.
Despite the global headwinds, India M&A is expected to remain stable in the next few years, with private investments reviving against the backdrop of a more favourable business environment. The forecast predicts India's GDP will grow by close to 7% through 2019-2022, ahead of the global GDP average growth rate of 2.8% for the same period. In IPOs, total proceeds (which will be predominantly from domestic IPOs) is forecasted to dip from USD 3.4 billion in 2019 to USD 2.7 billion in 2020, before picking up again in 2021 to USD 4.3 billion.
Ashok Lalwani, Global Head of Baker McKenzie's India Practice, said: "India M&A shows resilience amidst the current global economic turmoil. While domestic consolidation will continue to be a key driver in M&A activity, India's business-friendly reforms and high consumption growth potential will help garner interest from both local and foreign investors. We are hopeful that India will remain one of the world's fastest growing economies despite the headwinds."
Asia Pacific sees more declines in 2020
In Asia Pacific, the report predicts M&A activity declining 18% from USD 634 billion in 2019 to USD 529 billion in 2020, and IPO activity will likely continue its slower trend from this year, which is expected to amount to USD 36 billion, a 43% decline from 2018. IPO proceeds are predicted to dip even further to USD 33 billion in 2020.
The region’s weaker performance in 2019 can be attributed to a reduction in Chinese outbound deals due to government restrictions on outward investment. On a broader scale, this in turn may dampen economic momentum across Asia Pacific.
Uncertainty makes slowdown inevitable
“Make no mistake — deals are getting done, but the current slowdown is inevitable, considering the continuing uncertainty around trade and regulation,” said Ai Ai Wong, chair of Baker McKenzie’s Global Transactional Group. “We know that around the world, there are many investors and companies with capital on the sidelines, waiting to move forward with domestic and cross-border deals.”
A range of upside and downside risks could impact the global economy and lead to a rise or drop in deal values and volumes that differ from the central transactions forecast presented in this report. To explore both upside and downside risks, the report looks at five different economic scenarios: Trade War Escalation, Protracted Eurozone Slowdown, US Recession Hits the Global Economy, No-deal Brexit, and Trade War Fears Fade. To understand how these hypothetical outcomes might impact the global economy and the implications for dealmaking, you may view the interactive Global Transactions Forecast tool http://interactive.globaltransactionsforecast.com.