Legal Briefing

Mergers & Acquisitions (M&A) – Comparative Guide Introduction

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International Comparative Guides | 11 November 2016

Following the record levels of activity seen in 2015, global M&A in 2016 was always going to have a hard act to follow. So far in 2016, while global markets have remained reasonably active, they have been more subdued across all the major geographic regions and market sectors than was the case in the previous year.

Many of the macroeconomic factors that contributed to the high volumes of M&A seen in 2015 have continued to be prevalent during 2016. Interest rates have remained at or near all-time lows, while levels of organic revenue growth and scope for margin improvement have, on the whole, remained low. While these factors, alone, tend to make M&A a potentially attractive strategic option, 2016 has, in many respects, been a year where market participants have also faced a number of uncertainties.

European markets (and the UK in particular) have faced uncertainty relating to BREXIT, both during the first half of 2016 and following the UK’s vote to leave the European Union. The lower value of the pound on international currency markets however has attracted some investors to the UK.  Across the Atlantic, 2016 has also been an uncertain year in the US, featuring a particularly colourful US presidential election campaign and an unexpected outcome in the election of Donald J Trump. Growth levels in emerging markets have also been a cause for concern amongst investors, although this has to be balanced against the opportunities that these markets may offer in terms of rising affluence, demographics, better access through new technology and low levels of market penetration. Volatility in commodities prices during the period has also discouraged some investors.

Coupled with these uncertainties, deal making in 2016 has also been impacted by an increase in the levels of scrutiny which regulators (particularly in the US) have been applying to larger transactions (leading to the aborting of major deals, such as Halliburton’s proposed merger with Baker Hughes and Philips’ sale of its lighting components business to a consortium including GO Scale Capital), as well as the less permissive approach that the US treasury department are now taking to tax inversions (which led to the withdrawal of Pfizer’s proposed combination with Allergen).

Taking all of the above factors into account, 2016 has seen a significantly higher volume of aborted M&A transactions than has been the case in previous years (with the total value of aborted deals in 2016 to date already exceeding levels seen in 2015). The year has also seen a decline in the levels of blockbuster M&A activity which had been a feature of the market in 2015, although deals of significant size and scale have launched during 2016, such as Softbank’s takeover of ARM Holdings, Deutsche Bourse’s acquisition of the LSE, Bayer’s takeover of Monsanto and, recently, AT&T’s takeover of Time Warner).

While overall M&A activity in 2016 is unlikely to meet or surpass the levels seen in the previous year, there have been some notable highlights, particularly in cross-border M&A, which comprised a significant proportion of overall deal volume during the period. Chinese market participants have remained very active during 2016, surpassing the levels of China outbound M&A activity seen during 2015, including announced transactions such as the acquisition of Playtika by a consortium of Chinese investors led by Giant and Chem China’s takeover of Syngenta, with this transaction providing a good illustration of the increased levels of regulatory scrutiny to which larger deals are now often subjected.  Japanese outbound investment has also continued to be a feature of international M&A, potentially driven by Japan’s low domestic growth-rates and aging population.

The first half of 2016 saw decreased levels of M&A activity by PE sponsors, against a backdrop of higher asset prices, fewer quality assets coming to market and the macro uncertainties mentioned above. Anecdotally, pipelines for deal activity in this area appear to be firming towards the back end of 2016 and, taking into account the cash on hand available for deployment by PE sponsors and the continuing availability of relatively cheap acquisition financing, there is scope for increased activity levels in this area.

While activity by sector will necessarily vary from region to region, from a global perspective, 2016 has been a good year for M&A in the TMT and infrastructure sectors, while activity levels in life-sciences and financial services, to take two leading examples, has been more muted.

With the US presidential election having yielded a surprise outcome in the election of Donald J Trump, creating the potential for radical changes in both foreign and domestic US policy and with the UK’s altered relationship with the European Union still some way from being shaped and agreed, there remains continuing uncertainty in the markets. The potential for further European instability to persist into 2017 should also be factored in, with scheduled French and German general elections due to take place against the backdrop of the growing voice of nationalist movements in central Europe.

It seems that 2016 is likely to end with M&A activity levels somewhere behind where they had been in the previous year. However, with macroeconomic conditions which are conducive to M&A activity likely to persist into 2017, the question for market participants is whether the global M&A market will return to an upward trajectory, or whether market participants will continue to adopt the more cautious stance that has been a hallmark of 2016.

Whether the M&A activity you are contemplating is a blockbuster deal, or a smaller transaction, we hope that the carefully selected regional information set out in this guide will provide you with a helpful point of reference when considering the legal regimes which might be applicable to your transaction.