What do you believe will be the three most significant factors influencing M&A activity over the next 2 years?
Mergers & Acquisitions (2nd edition)
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.
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.
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.
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.
The (low) interest rate, Belgian tax reform and the geopolitical climate, e.g. Brexit.
In our view, during the next two years the three most significant factors influencing M&A activity in Vietnam are likely to be:
- 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;
- 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
- 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.
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.
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.
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.
(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.