After a sluggish first half of the year, M&A activity could be set to pick up significantly in the remainder of 2017 as companies that have been taking a wait-and-see approach move off the sidelines and deploy their cash.
The urge to get deals done is fuelled in part by companies’ willingness to spend on technologies and innovation to compete and stay ahead, according to Clifford Chance’s latest global M&A update and outlook.
“Shareholder voices and activism are leading to corporate break-ups and sales of non-core assets, strategic bolt-on acquisitions and mergers,” said Guy Norman, Clifford Chance’s global head of M&A. “The low-growth environment continues to drive boards to take action, which is promising for activity levels as we head to the year-end.”
M&A activity was down 24% by value during the first half compared to the previous six months, particularly after China placed curbs on capital outflow as part of a clampdown on Chinese investment in non-core or ‘irrational’ purchases, including trophy assets such as landmark buildings, hotels, movie studios and sports clubs.
Deals supporting China’s One Belt One Road strategy are likely to fare far better, according to Clifford Chance. Advisers are also helping companies to find new ways of negotiating the current environment.
“Using innovative security and fund flow structures, we are helping bidders address the regulations in a meaningful way, while ensuring the deals get done,” said Shanghai M&A partner Glen Ma.
Another issue that has been holding up deal-making is a tougher antitrust stance, particularly in Europe, around data-rich companies. Multi-jurisdictional transactions are far more likely to be scrutinised or challenged where there is a significant data element.
In private equity, record levels of dry powder are driving activity, as financial investors look to capitalise on volatile currency markets and corporate break-ups. “There are always opportunities for the agile, but in a time of continuous disruption, this is particularly the case,” said Clifford Chance London M&A partner Christopher Sullivan.
A number of cross-border deals have already been announced during the past few weeks, including Cheung Kong’s purchase of Ista, the US$12 billion bid by a Chinese consortium to take Singapore’s Global Logistic Properties private and Vantiv/Worldpay.
If Clifford Chance is right, the rest of the year could see a glut of deals — and cancelled holiday plans for lawyers working to get transactions completed.