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

Mergers & Acquisitions (2nd edition)

Hong Kong Small Flag Hong Kong

Given the popularity of the Hong Kong market with mainland Chinese investors, levels of M&A activities are generally tied to regulatory and economic developments in China.

In particular, it is envisaged that as mainland Chinese regulators may be relaxing tough foreign exchange controls and providing greater policy clarity this year, it should result in greater availability of funds which could in turn kick-start significant outbound Chinese M&A growth.

It is estimated that the following are the three most significant factors that could influence M&A activity over the next 2 years: (1) the pace of China’s economic growth, (2) the trend of local companies already in a globalization trend continuing to be on the lookout for suitable overseas investment opportunities, and (3) the prevalence of H-shares and red chips continuing to make use of their listing vehicles in Hong Kong for M&A activity.

Austria Small Flag Austria

The Austrian M&A market will continue to be influenced by macroeconomic developments (such as Brexit, general economic developments). Due to the persisting low interest rates and existing high liquidity in the market, investors will keep searching for projects with higher achievable margins. We believe that as in previous years, the real estate and technology sectors will continue to garner significant interest.

United Kingdom Small Flag United Kingdom

The three most significant factors, we believe, will be Brexit, availability of finance (particularly in the private equity space) and an increased focus on privacy and cybersecurity diligence.

Brexit continues to loom large and whilst the EU and the UK government leaders have approved moving to Phase 2 of the Brexit negotiations, much of the detail still remains to be worked through and agreed upon. Foreign investment and interest in the UK continues and whilst much is still to be determined, the UK M&A market has proven resilient and the outlook for 2018 remains largely positive.

Private Equity funds have a substantial amount of cash available to be deployed and that, coupled with favourable debt markets contributed to an active year in 2017 for private equity M&A. This momentum is expected to continue in 2018 although an increase in interest rates may have an adverse effect on these areas.

With data breaches and cyber-attacks occurring with increasing regularity, we expect these areas to become much more important in UK M&A transactions in the next couple of years. Consequently, approaches to diligence and to seeking contractual protection in these areas, we believe, will increase.

Bulgaria Small Flag Bulgaria

The improving economic conditions and the increasing GDP are likely to have a positive effect on the M&A market, as local businesses try to expand and new foreign investors seek entry to the Bulgarian market. This positive outlook is substantiated by the relatively stable political environment and overall optimistic investment climate for the region. The market is likely to be positively impacted by the increasing level of M&A activity at the global and regional levels. However, stricter regulations, adopted domestically and at the EU level can be viewed as potential market growth deterrents.

Colombia Small Flag Colombia

In our opinion, the three most significant factors influencing M&A activity over the next two years will be:

  • The continuing growth in the attraction of foreign investors for Colombian companies and assets, triggered by the expected recovery of the economy, pulled in turn by the rapid growth of the middle class and the technologic evolution of the local industries.
  • New trade and investment treaties entered into by Colombia, mainly the Pacific Alliance Free Trade Agreement (Mexico, Chile, Peru and Colombia) that significantly reduced the tariffs and duties on trade and integrated such countries´ securities markets.
  • The stabilization of the political climate that will depend on the successful implementation of the peace agreements entered with the FARC guerrilla and the upcoming presidential election.

France Small Flag France

First and foremost, M&A activity will inevitably be influenced by the profound changes that are taking place in our economy today due to the influence of new technologies. In particular, big data and digitalization are poised to cover a wide range of fields, from banking to mass distribution.

The international environment will also be more decisive than ever: the Brexit negotiations, and their potential economic and financial consequences represent a major source of concern, especially for the financial sector. Beyond that, a likely rise in interest rates is worrying as the major central banks, primarily the Fed and the ECB, are currently engaged in the process of normalizing their monetary policy. The evolution of the Iranian situation and the normalization of economic growth in China will also have fundamental implications on French companies at international level.

Finally, the regulatory environment will continue to play, as always, a key role in the level of M&A activity in France. Especially, the improvement of the labour law environment and tax law attractiveness are structural factors that keep coming back into the concerns of international investors. Recent changes have been earmarked as positive.

New Zealand Small Flag New Zealand

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

  • Overseas investment regulation – foreign investment in New Zealand is controlled through a consent regime administered by the New Zealand Overseas Investment Office (OIO) and captures transactions in excess of NZ$100 million and acquisitions of sensitive parcels of land. As a consequence of the recent change in government and increased scrutiny by the OIO, consent timeframes have lengthened and certain investors have been unable to satisfy the OIO’s requirements. The most recent example being HNA Group’s failure to obtain OIO consent for its proposed acquisition of UDC Finance. We expect that this trend will continue throughout 2018 and 2019.
  • Supply of target businesses – the New Zealand market typically lacks businesses that are of a scale sufficient to attract strong offshore interest. This has resulted in a rise in aggregation transactions involving the acquisition and combination of multiple businesses to achieve a greater scale. Aggregation transactions in 2017 include the establishment of early childhood education provider Provincial Education Group (and investment by Waterman Capital) and the reverse listing of Transport Investments Limited, an aggregation of various transport and logistics providers.
  • Impact of bank regulation – As noted above, the implementation of recent changes in banking regulation in Australia and New Zealand is expected to lead to a number of further transactions in the banking sector where New Zealand’s major banks (which, being Australian owned, are indirectly subject to Australian banking regulation) will look to continue a trend of divesting non-core assets with a shift in focus to more traditional banking services. The general increase in regulation has also put constraints on banks’ willingness to fund acquisitions and growth, which has seen a rise in alternative capital providers available to fund the bridge between senior debt and equity.

Egypt Small Flag Egypt

The most significant factors influencing M&A activity over the next 2 years include:

  • the resolution of the foreign currency shortage crisis in Egypt and lifting of FX controls as evidenced by the record foreign currency reserves of the Egyptian Central Bank;
  • population demographic growth whereby the population of Egypt has recently surpassed 100 million;
  • the development of the New Suez Canal Economic Zone and the related establishment of a major logistical and industrial zones therein; and
  • regional and international Private Equity interest.

Cayman Islands Small Flag Cayman Islands

We believe that the most significant factors influencing M&A activity in the Cayman Islands will be (i) whether or not interest rates remain low which will determine the availability of inexpensive debt, (ii) the increase in activist shareholders and their strategies to unlock value and (iii)private equity firms seeking to deploy capital.

Italy Small Flag Italy

Keeping the current M&A pace in the coming two years will depend mostly on macro-economic factors – specifically, meeting the economic growth forecast for Italy and the EU area and the actions that the ECB takes on interest rates and bond-buying programmes.

At a domestic level, uncertainty regarding the upcoming general elections (taking place in early March) is expected to influence investments if a protracted period of political instability follows. Additionally, the stability of the banking system, which could suffer in the event of economic slowdown or major political instability, could influence the ability of the M&A market to keep its current pace throughout 2018 and 2019.

Ireland Small Flag Ireland

Brexit: With Brexit currently scheduled for March 2019, the next two years will be particularly significant in the Irish M&A market. While uncertainty remains, a number of UK-headquartered companies have indicated they will look to move to Ireland to continue to avail of the EU single market and other European/US-based companies that were looking at M&A activity in the UK may now choose to structure through Ireland as a preferred option.

US Tax Reform: Following new US Treasury Rules in 2016 to restrict inversions the US recently signed into law the Tax Cuts and Jobs Act, which introduced enhanced inversion deterrence to US companies seeking to migrate abroad. This new framework may reduce the number of US/Irish inversion deals while companies adopt a 'wait and see' approach.

Interest rates: With US federal interest rates on the rise and the ECB aiming to increase rates from 2019, buyer appetite for M&A may be accelerated given the potential increased cost of debt financing and impact on overall deal value. The market may see a number of deals completed over the next year while interest rates remain at lower levels.

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 is the presidential election which may result in the adoption of a liberal agenda which is likely to strengthen deal activity. As the government retreats from intervention there is privatization and all the activity that it causes, sale of participation in very important segments of the economy -, as well as a general confidence that this type of environment creates.

Cyprus Small Flag Cyprus

The stability of the financial sector in Cyprus and the respective growth of the economy have been significant factors contributing in the increased volume of M&A activity and are likely to contribute to future development. Furthermore, the uncertainty relating to BREXIT and the effect it may have on the business may lead to an increased level of inbound merger activity.

Further developments at a European Union level and future regulatory reforms would also have a significant effect on the fortune of M&A activities and the restructuring of several large international structures with a strong presence in the Republic of Cyprus.

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.

Myanmar Small Flag Myanmar

A key factor likely to influence mergers and acquisitions activity is the extent and manner of implementation of the reforms Myanmar has been undertaking since opening to foreign investment, in particular the timely implementation of the MCL, and the extent to which Myanmar adapts and modernises its local practices and regulatory culture in implementing such reforms.

A second challenge is whether Myanmar can improve its infrastructure to support foreign investment. Around two thirds of Myanmar’s population does not have access to the national electricity grid, and reliable access to power and transport continues to impact the conduct of business in Myanmar.

A final factor likely to affect foreign participation in mergers and acquisitions is Myanmar’s reputation as a place to invest. A key concern in this respect is the extent of re-imposition of any sanctions. On 20 December 2017, US President Donald Trump issued Executive Order 13818 providing for the listing of persons involved in human rights abuses and corruption in the US Treasury’s Office of Foreign Assets Control’s list of Specially Designated Nationals and Blocked Persons. Currently, only one person, Major General Maung Maung Soe who formerly oversaw the Myanmar military’s operations in Rakhine State, has been listed as a Specially Designated National under this order, and western nations have been cautious of the effect of sanctions on Myanmar’s transition to democracy. However, the broader re-imposition of sanctions could affect the ease of investing in Myanmar and raise reputational risks for foreign investors.

Greece Small Flag Greece

According to the agreement between Greece and its creditors, and subject to the financial status of the country by that time, Greece is expected to conclude the program assessment having put in place a number of drastic measures to become more competitive, and will most likely exit the financial restructuring programs in August 2018. Such exit could result in the stabilization of the country’s economy and thus to more business confidence and more investments, which would in turn generate greater M&A activity. Taking into account the growing rate of transactions in the first half of 2017, it could be argued that signs of such confidence have already made their appearance.

Also, through a rigid electronic foreclosure programme, banks are expected to reduce their exposure to non-performing loans and direct liquidity into the market.

Finally, Directive 2017/828 on the encouragement of long-term shareholder engagement, published in May 2017, can also have a positive impact on M&A activity in Greece. The directive requires Member States to ensure that companies have the right to identify their shareholders, thus facilitating the exercise of shareholders' rights both domestically and in other Member States and potentially resulting in more inbound and domestic investments.

Germany Small Flag Germany

Apart from macro-economic factors and the overall political situation globally, which might cause concerns and uncertainties for investors and corporates alike, we mainly see the following three factors as most significant:

a) Interest rate environment: A gradual increase in interest rates appears to be the most likely scenario over the coming years. Under this scenario, due to the extremely low level of interest rates, we expect continuously favorable M&A markets. In the case of a rapid and unguided interest rate hike, the positive M&A market sentiment may be threatened.

b) Growth expectations of strategics: In the current positive global growth environment, shareholders are asking for continued revenue growth. In many cases, organic growth is limited leaving inorganic growth the only option for management teams to deliver revenue growth.

c) Dry powder of private equity: In Germany, about 20-25% of the M&A transactions are private equity related. With continuous funds poured into the sector, private equity is expected to remain a key driver of the M&A market.

Belgium Small Flag Belgium

The (low) interest rate, Belgian tax reform and the geopolitical climate, e.g. Brexit.

Vietnam Small Flag Vietnam

In our view, during the next two years the three most significant factors influencing M&A activity in Vietnam are likely to be:

  1. the increasing numbers of listed and unlisted public companies taking advantage of the availability of State Securities Commission approval to increase the permitted foreign ownership percentage of those public companies from 49% to 100%, which has only recently become a possibility;
  2. the increasing liberalisation and rationalisation of the regulatory landscape in Vietnam, which is already making and will continue to make the implementation of M&A transactions faster, easier, and less bureaucratic; and
  3. the continued and more expeditious implementation by the Vietnamese Government of its programme of equitising (privatising) State-Owned Enterprises in Vietnam and divestment of State shareholding interests in many former State-Owned Enterprises which have already been equitised, operating in a wide range of industry sectors, which gathered excellent momentum during 2017 and is expected to achieve major progress during 2018 and 2019.

Switzerland Small Flag Switzerland

US investments into Switzerland are expected to continue being a driving force. This trend may likely be further supported by the recently approved US tax reform which is expected to free up additional cash. We expect to see M&A deals that are driven by the increased relevance of digital technologies in non-tech industries (e.g., consumer goods). The rise of the EUR against the Swiss Franc may also have a positive impact on acquisitions by European buyers. While Chinese buyers were less active in 2017, we expect to see an increase over the next 12-18 months, in particular in sectors such as infrastructure, logistics, tech and healthcare.

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.

In addition, it should be mentioned that the 2017 trend was increased governmental supervision over acquisitions by foreign parties of stakes in Russian companies in all sectors.

Romania Small Flag Romania

The global economic trends and the stability of the Romanian government and its policies (especially tax policies) appear to be the challenges to be faced by the Romanian M&A market in the next couple of years.

Qatar Small Flag Qatar

(a) The need for rationalisation of the number of local banks (which are all listed) is likely to be a significant factor going forward.

(b) The decision by Qatar Petroleum to focus more on core business activities will have a significant effect.

(c) The ongoing political issues are likely to have effects on investment and activities in the region generally.

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. This year ended with U.S. equity markets performing exceedingly well and achieving all-time highs in unprecedented fashion. With this rally came record-breaking price levels and valuations. Given the recent early February stock market pullback, however, it is likely that we will see reduced levels of M&A activity in the near term as equity markets have entered a period of high volatility with a tone of economic uncertainty. In particular, there is currently a great deal of speculation about the continued pacing of the Federal Reserve raising interest rates. While rates have increased at a slow, gradual rate since late 2015, concerns have surfaced surrounding the possibility that the Fed will begin taking a more aggressive approach to the rate increases in an attempt to slow inflation. Significant rate increases would raise the price of financing acquisitions through borrowing, likely resulting in an economic slowdown and reduced M&A activity.

Second, the current level of domestic political uncertainty will affect the M&A market. This effect is perhaps most notable in respect of the regulatory environment. The 2016 U.S. presidential election resulted in an administration which most anticipated would take a more business-friendly approach to regulation, but efforts by the DOJ to block certain high-profile megadeals indicate that the regulatory environment may remain challenging.

Finally, U.S. tax reform is likely to play a key role in the level of M&A activity. The tax reform bill Congress passed in December 2017 lowered the U.S. corporate tax rate to 21%. In addition to reduced taxes on future income, this reform may further lead to an influx of free cash flow among U.S. companies as many will move to repatriate sums of cash previously trapped offshore.

Sweden Small Flag Sweden

The three most significant factors driving M&A activity in the Swedish market over the next two years are likely to be (i) the value of the Swedish currency in relation to foreign currencies, (ii) securities market valuations and the general state of the financial markets, and (iii) eventual changes with respect to capital accessibility or the overall risk willingness.

Philippines Small Flag Philippines

First, we believe that the state of the Philippine economy will continue to have a significant influence over the level of M&A activity. Periods of economic upturn has typically been accompanied by an increase in M&A activity, while period of economic downturn (recession, economic or financial crises) see and significant decrease in M&A activity.

Second, there have been proposals to lift the nationality restrictions in certain key industries (e.g., public utilities), with the current President himself expressing support for such proposals. If these proposals come into fruition, we might see increased M&A activity in the pertinent sectors, especially ones involving foreign investors who are currently restricted to holding only a minority stake.

Third, and from a regulatory perspective, we expect the newly-instituted and still-developing merger control regime to continue to have a significant influence in M&A activity. High-value M&A deals now have to comply with a merger notification requirement within 30 days from the signing of the definitive agreements, and closing subject to antitrust clearance being obtained. We have already seen one deal voided for failure to comply with the notification requirement, and several deals having to agree to commitments in order to secure antitrust clearance.

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.

Japan Small Flag Japan

First, it goes without saying, but the state of the Japanese economy will influence the Japanese M&A market. For example, because the Japanese market is shrinking in various industries due to the decline in Japan’s population, the recent trend of Japanese companies pursuing outbound transactions is expected to continue for the next few years.

Second, the adoption of corporate governance reforms in Japan may also have an impact on M&A activity. On-going corporate governance reforms are creating pressure on Japanese companies to improve their performance, and as a result, some Japanese companies may become more aggressive in pursuing M&A transactions.

Finally, the development of technology and innovation is expected to affect M&A activity. The development of technology and innovation is expected to not only facilitate an increase in M&A transactions involving venture companies and venture capital (especially in new fields such as artificial intelligence and financial technology (Fintech)), but also affect traditional business sectors. For instance, it would not be surprising to see advances in self- driving and electric vehicles facilitating reorganizations in the automobile sector.

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.

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.

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; and
  3. the effects of Solvency II equivalence with increased compliance costs and enhance capital requirements requiring larger balance sheets.

British Virgin Islands Small Flag British Virgin Islands

The most significant factors influencing M&A activity in the BVI will be (i) the potential impact of rising interest rates coupled with the winding down of central bank liquidity measures, (ii) U.S. tax reforms and (iii) levels of outbound Chinese investment.

Jersey Small Flag Jersey

Other than technology disruption and private equity deployment, we consider the three most significant factors for Jersey to be:

  1. political uncertainties including Brexit in Europe and the midterm elections in the US;
  2. US and UK tax and regulatory reforms; and
  3. Chinese government scrutiny over outbound deals.

Turkey Small Flag Turkey

Increasing demand from both foreign and domestic investors over the next two years would first and foremost depend on the perceived political, judicial and economic stability of Turkey. 2016 and to some degree 2017 were difficult years in that sense which caused investors to refrain from any aggressive moves. Ending the state of emergency and a smooth transition to the presidential system could contribute to more M&A activity.

Interest rate hikes by the FED, as well as turmoil in the Euro zone including Brexit, the independence referendum in Spain, and financial difficulties in various countries have all had an undeniable impact on the M&A market in general over the last couple of years. For Turkey specifically, foreign investor appeal had a significant influence on the M&A market during the golden era of the mid-2000s. Therefore, global developments are expected to continue to be an important factor on the Turkish M&A market over the next two years.

Nigeria Small Flag Nigeria

(i) Increased capital base requirements for companies within certain industries/sectors of the economy

(ii) Diversification of operations

(iii) Economy of large scale and the need to expand market shares.

Updated: October 9, 2018