What do you believe will be the three most significant factors influencing M&A activity over the next 2 years?

Mergers & Acquisitions

Austria Small Flag Austria

The first significant factor influencing M&A activity will be macroeconomic developments (eg, general economic developments and the impact of the Brexit vote).

We believe that further significant factors influencing M&A activity will be the fluctuation of energy and raw material prices and currency exchange rates that support the appetite for cross-border transactions.

Bermuda Small Flag Bermuda

There is speculation that the (re)insurance market will continue to provide the majority of M&A activity due to the following:

  1. continued soft market as well as pressure on terms and conditions in the market;
  2. purchasers desire to increase their global footprint, expand into new products and distribution channels and the need to achieve scale and stronger client relationships;
  3. the effects of Solvency II equivalence with increased compliance costs and enhance capital requirements requiring larger balance sheets.

Brazil Small Flag Brazil

The potential economic recovery of the country is the first one, without the shadow of a doubt. The very same crisis that held business and deals back in the last couple of years is likely to cause a spike of activity in the next 2 years. The deals that did not occur in the recent past will occur, and the deals that were supposed to occur will not be held back. It is double the regular activity and it could spread through the entire economy. In the infrastructure industry we will continue to notice the effects of the Car Wash. Access to fresh cash is like oxygen to large infrastructure groups and such access is only possible these days through M&A. Another factor that may influence the M&A activities in the long range is the refrainment of the government from excessive intervention in the economy, which was in the DNA of the Brazilian executive for the last 14 years. As the government retreats from excessive intervention and bets on privatizations and all related activities, such as the sale of participation in important and strategic segments of the economy (O&G for example), there is an important pipeline of deals ahead for new infrastructure concessions (specially of airports and urban mobility works).

British Virgin Islands Small Flag British Virgin Islands

The most significant factors influencing M&A activity in the BVI will be (i) continuing low interest rates, (ii) activist shareholders and (iii) the increased use of BVI companies as special purpose acquisition companies (SPACs).

Cayman Islands Small Flag Cayman Islands

We believe that the most significant factors influencing M&A activity in the Cayman Islands will be (i) the continued availability of inexpensive/covenant light debt, (ii) the increase in activist shareholders and their strategies to unlock value, (iii) the use of Cayman vehicles as listed companies (particularly in Asia with Hong Kong and Singapore leading the way).

China Small Flag China

ZL: We think in the next two years, the most significant factors influencing enterprises’ M&A activities are as the followings:

(1) Policies
Currently, alongside with national reform of Mixed Ownership Economy, capital market in diversified levels will be promoted to perfection. Moreover, the implementation of the strategy of “One Belt One Road” provides momentum for the M&A market. China is experiencing an upsurge period of M&A. The persistence of relative policies and whether there will be launching substantially favourable policy will have direct influence on enterprises’ M&A activities.

(2) Economic Environment
The complexity and the costs for M&A transactions would greatly depend on the persistence of economic growth and the prospection of the future, which are also closely linked with the acquired enterprises’ willingness to sell, evaluation and pricing. For M&A regarding listed companies, relative transaction will be more active in bull markets with relatively higher evaluation and the Buyer has better chances of financing, making it easier to get the deal sealed. Even the economic growth will shift from high speed to the gear of high-medium speed, the economic reform of China, the integration and reorganisation of industries and reform of State-Owned-Enterprises, as well as other long-term driving factors, such as extensive growth strategy, will promote the growth of M&A activities.

(3) Legal Environment
The alteration of regulations has a direct influence on the stand or fall and efficiency of M&A activities. For M&A regarding listed companies, China has primarily developed the legal framework for the reorganization and merger of listed companies. As a whole, the whole process can be regarded as a gradual perfection of stock market through continuous reorganization practices. The legislation will generally follow the steps of the practices in stock market. Although the M&A related legal framework is not perfect, it has great significance in regulating the M&A activities for listed companies. From the perspective of Chinese enterprises overseas M&A, relevant Chinese competent authorities have simplified the approval and filing procedure more than once to streamline administration and begin to delegate powers to the lower levels and have launched several regulations and policies supporting the Chinese enterprises to go global, which have tremendously boosted Chinese enterprises’ enthusiasm to invest overseas and have mitigated the pressure related to the approval and filing procedure before the enterprises.

Finland Small Flag Finland

For the time being, we expect activity levels to remain quite high. It will be interesting to see whether there will be more large industrial transactions like the ones that we have seen this year. To ease public sector finances, the Finnish government is expected to continue to look for opportunities to divest some of its nonstrategic holdings.

All of the leading Finnish private health, elderly and social care providers are held by private equity, with KKR and Triton owning Mehiläinen, EQT owning Terveystalo, IK owning Attendo, Adelis Equity owning MedGroup and Intermediate Capital Group having acquired Esperi from CapMan. Investment in these sectors is driven by attractive demographics, as well as public budgetary pressures and the pending reorganisation of the public health care sectors that some believe creates new opportunities for increased outsourcing. The market is expecting that at least some of these sponsors will seek to exit their investments in the short to medium-term.

Further consolidation is also continuing in the health, dental and social care services, with the larger operators competing for add-ons of still independent clinics. A more recent phenomenon is the similar consolidation trend in the veterinary services market, with the rapid growth of pan-Nordic operators like Evidensia, held by EQT and Intera Partners.

The real estate market picked up in 2014 and has remained very active since, despite Finland’s modest macroeconomic indicators compared to other EU countries. The lack of good investment properties and low yield levels in Europe’s main market areas continue to drive investors to seek higher yields and spread risk in Scandinavia and Finland. Swedish and German investors have been particularly active also this year and this trend can be expected to continue.

The valuations of infrastructure assets, both regulated and unregulated, have reached unprecedented levels – a trend that is likely to spur further activity. These assets in a stable jurisdiction have proved highly attractive to international pension and infrastructure funds as they look for stable returns and geographic diversification in their portfolios.

In terms of entertainment, the mobile gaming sector continues to attract investment. In the wake of mega success of the likes of Supercell, there are hundreds of promising new gaming companies that have attracted top talent, including game studios such as Next Games, Snowprint, Small Giant Games, Ministry of Games, Dazzle Rocks and Traplight. Many of these companies are successfully raising capital from some of the leading venture capital funds in Asia, the US and Europe. Finland is known for its high concentration of expertise in mobile game development. We are also seeing an increasing amount of M&A in the gaming sector with smaller studios being bought out by their bigger rivals.

Germany Small Flag Germany

The long term financial and economic consequences of the ‘Brexit’ will have a significant influence on M&A activity in Europe and also in Germany. Moreover, the development of the USD-EUR exchange rate is always one of the most important factors for the attractiveness of European – and especially German – targets. Finally, the ability to solve the current fundamental political problems in Europe and Germany (refugee crisis, recent terrorism, the development of the ongoing Euro crisis) will be decisive for the development of M&A activity in Germany.

Greece Small Flag Greece

The flow of bank financing to the market, especially through the resolution of the non-performing banking loans (NPLs) problem, is expected to create new opportunities for new ventures/projects, growth and increased M&A activity. Similarly, the expected privatizations will have a positive influence on the M&A market. On the other hand the constant changes in the tax legislation, together with the high tax rates imposed have a negative influence on the trend of M&A activities in Greece.

The aforementioned major market driving factors are further highly dependent on and should be assessed in the context of the fragile political stability in Greece and the progress in the implementation of the country’s memorandum with its international creditors.

Guernsey Small Flag Guernsey

We believe the three most significant factors will be:

  1. the continuing changes to the regulatory framework for banks in the UK;
  2. the continuing consolidation within the fiduciary sector; and
  3. the value of sterling and global investor confidence.

Isle of Man Small Flag Isle of Man

We believe the three most significant factors will be:

  1. the continuing changes to the regulatory framework for banks in the UK;
  2. the continuing consolidation within the fiduciary sector; and
  3. the value of sterling and global investor confidence.

Norway Small Flag Norway

The three most significant factors driving deal making activity in the Norwegian market during the next 2 years, will most likely be (i) international commodity prices (oil and gas); (ii) global megatrends; and (iii) board confidence in the global capital markets. Examples of global megatrends that may drive deal activity is digital technology facilitating changes in customer behaviours; boosting eCommerce sales, again accelerating innovation typically within automation, robotization and high tech. Improved oil and gas prices will lead to increased deal activity in Norway. At the same time, a prolonged downturn in the oil and gas prices may lead to an increase in distressed assets sales, which also could lead to an increase in Norwegian deal making activity for the Energy sector.

Russia Small Flag Russia

Geopolitical and internal political situation (especially in the context of the 2018 presidential election) will be one such factor. Predictability and stability in politics would support resumption of more active M&A. Degree of success of current efforts to diversify the economy and increase the number of attractive investment projects will be another. Finally, the dynamics of oil and gas prices and, by extension, of the Ruble exchange rate will continue to be a major factor – as always in Russia.

Saudi Arabia Small Flag Saudi Arabia

The Government's new economic initiatives (NTP 2020 and SV 2030) are going to have an overwhelming influence on the M&A landscape. The expectation is that the Kingdom is willing to open up to new investment, with sectors such as construction, retail, healthcare and manufacturing likely to evolve as a result.

The prominence of Saudisation, and the focus of the Government on ensuring that a greater number of Saudi nationals are in employment, will continue to impact the valuation of companies given the cost of complying with its requirements (e.g., the requirement to pay minimum wages and provide staff training). Skills-heavy industries are likely to insist on the need for foreign labour and the manner in which the Government balances these competing interests will be crucial.

The confidence and momentum with which private capital flows and regional family offices begin to spread their influence in the Kingdom will have a significant impact on how the domestic M&A market develops in the short to medium term. In a lower oil price environment, the economy will need to look to wealth creators to stimulate growth in line with Government-led strategy. Ensuring that sources of private capital are well advised enough to invest in the local market should, in turn, create a confidence in the region that stimulates further deal flow.

Japan Small Flag Japan

We believe that the following three factors will significantly influence M&A activity in Japan over the next few years:

Corporate governance reforms aimed at improving capital efficiency

The Japanese government has implemented corporate governance reforms as part of its so-called ‘Abenomics’ economic policies. It is hoped that these reforms will improve capital efficiency among Japanese companies. This, coupled with the recent tendency among Japanese companies to retain large reserves of surplus funds, will probably lead companies to sell unprofitable businesses and acquire profitable ones.

Maturity of the domestic market

With a declining population and a continuing recession, the upward trend in domestic M&A activity is likely to slow and, as a result, more and more Japanese companies will be looking to expand overseas by acquiring foreign businesses.

The state of the world and domestic economy

One of the biggest factors affecting M&A activity over the next few years will be the fragile situation in the world and domestic economies, including interest rates and the extensive fluctuations in the Japanese yen exchange rates against other major currencies.

Thailand Small Flag Thailand

International economic conditions, the strength of the Thai Baht and the appetite of foreign investors, particularly Japanese investors for real estate and Chinese investors for assets generally.

Malta Small Flag Malta

Malta’s current economic climate, together with its reputation as a stable and attractive base for international business, boasting a professional English-speaking workforce, complemented by an attractive legal, regulatory and fiscal framework is one of the main factors that will assist in sustaining growth in the near future.

Market consolidation and the pooling of resources is certainly another factor that will impact both local and international M&A activity. Whilst reducing fragmentation, the consolidation of entities with same-sector market players will secure increased efficiency and broaden market exposure resulting in further growth in the sector. On the opposite end, diversification, coupled with a quest to reduce risk exposure may also assist in maintaining the current pace. Growth can also be seen as another driver for increased M&A activity in view of the fact that the merger or acquisition route is often perceived as enabling an entity to grow faster in the shortest time-frame possible.

United States Small Flag United States

We expect M&A activity in the U.S. over the next two years to be heavily influenced by the state of the U.S. economy. In the period since the global financial crisis, we have seen the highest levels of M&A activity during periods of relative economic and market stability. On the other hand, periods in which there are high levels of market volatility and economic uncertainty have resulted in reduced M&A activity. In particular, there is currently a great deal of speculation about the timing of the Federal Reserve raising interest rates. While any rate increase would raise the price of financing acquisitions through borrowing, the current belief is that any increases will be small and gradual. Of more significance is the impact of rate actions on equity markets and what those actions signal about the Federal Reserve’s view on the strength of the economy.

Second, the current level of domestic and international political uncertainty will affect the M&A market. While the United States is currently experiencing a relatively high level of domestic political uncertainty because of its upcoming presidential election, we expect that the level of uncertainty will dissipate following the election. We expect that global political uncertainty, however, will continue to be a factor.

Finally, the regulatory environment in the United States will continue to play a key role in the level of M&A activity. Recently, a number of deals have been delayed or terminated because of antitrust concerns. We view those developments as a combination of more robust antitrust enforcement in the context of transactions as well as strategic acquirers attempting to undertake transactions in consolidating industries and encountering regulatory hurdles that may well have been larger than the parties anticipated.

Vietnam Small Flag Vietnam

In the view of Frasers Law Company, the three most significant factors which are likely to influence M&A activity in Vietnam during the next two years are:

  1. the tariff reductions and removal of investment barriers provided for under the Trans-Pacific Partnership and the EU-Vietnam Free Trade Agreement, assuming they enter into force as expected;
  2. the recent law which permits the increase of the available foreign ownership percentage of many listed and other public companies from 49% to 100%; and
  3. the continuing improvements made by the Vietnamese Government in areas such as:
    • legislative clarity;
    • consistency of legislative interpretation and application;
    • streamlining and simplification of regulatory application procedures and approval times; and
    • transparency.

Mauritius Small Flag Mauritius

  1. the robust regulatory framework for non-banking financial institutions and capital markets in Mauritius;
  2. the continuing consolidation within the fiduciary sector; and
  3. government policy.

Jersey Small Flag Jersey

  1. The value of pound sterling and global investor confidence;
  2. continued consolidation in the fiduciary and corporate services sector and re-organisations in the banking sector; and
  3. opportunities arising as a consequence of Brexit.

Romania Small Flag Romania

We would short list the following: (i) the appetite of foreign investors for local investments, (ii) the ability of the Romanian state to make Romania an appealing jurisdiction by improving and also putting forward predictable and clear legislation, and (iii) an international context favouring economies like Romania (see for example, political turmoil in Turkey, which makes Romania an appealing and stable jurisdiction).

New Zealand Small Flag New Zealand

We think the three most significant factors influencing M&A activity over the next two years will be:

  • OIO – New Zealand’s foreign investment control regime, as set out in the Overseas Investment Act and administered by the OIO, continues to be a major issue in New Zealand M&A and is likely to continue to be an issue over the next two years. Since the counterfactual test was introduced in 2012, timeframes for OIO decisions involving sensitive land have lengthened significantly and are now much slower than for comparable jurisdictions, such as Australia, where many decisions are made within 30 days of notification.
  • PE – Alongside corporate and strategic transactions, we expect strong private equity activity in 2017 and beyond, with Australian and New Zealand sponsors looking to put newly-raised funds to work.
  • Funding – Banks are currently keen to fund acquisitions, but pricing is now expected to be on an upward curve and may temper M&A activity.

United Kingdom Small Flag United Kingdom

The impact of uncertainty relating to BREXIT and the UK's changing relationship with the European Union can already be clearly seen in UK M&A activity levels. It is also clear that uncertainty in this area is likely to persist for the foreseeable future and it is also necessary to consider what the implications of BREXIT might be for the European Union more generally.

The question that remains to be answered is whether buyers will be willing to tolerate a degree of uncertainty (as some have done since the BREXIT vote) and return to the UK market (particularly having regard to the current weakness of the pound), or whether many will continue to bide their time, in the hope that the picture will become more clear in early 2017, once the UK has commenced formal procedures to bring about its exit from the European Union.

With London being a base for many large global companies of significant scale and inbound M&A continuing to be a prevalent feature in the market, the fortunes of UK M&A tend to be closely linked to the wider global economy. Consequently, global economic conditions will continue to be a significant factor in determining on-going levels of UK M&A activity.

With many corporates currently sitting on significant cash reserves and debt financing continuing to be relatively accessible, it remains to be seen whether a continuation of historically low global interest rate policy, taken together with continuing lower levels of organic growth and a weak pound will act as a catalyst for M&A activity in the UK.

Spain Small Flag Spain

  1. The regulatory framework: new applicable Spanish laws and European Directives, especially related to taxation, financial markets and compliance rules. In this regard, the special significance that the regulatory changes have on the M&A markets implies a positive (or negative) encouragement in the investors’ willing to invest.
  2. Financing: the capability and volume from the financial entities to grant financing in favour of companies, which may promote investments and to mobilize markets.
  3. New technologies and markets: the irruption of new products, services and channels, which may affect, among others, to classic and established markets (e.g. transports and hotels).

Turkey Small Flag Turkey

In the context of unstable and unpredictable geopolitical developments in neighboring countries, the status of the Turkish economy and its attractiveness to foreign investors might be difficult to assess on the mid-term. This being said, structural reforms at macroeconomic level, easing of domestic political tensions (especially after-effects of the constitutional referendum) and relative stabilization of the regional geopolitical context might positively impact the perception of international investors and consequently boost the flow of FDIs into Turkey in the short term. Nevertheless, small/medium-sized local M&A transactions should still keep the market busy as consolidations and restructurings can be reasonably expected.

Updated: April 18, 2017