What is the current state of the market?
Mergers & Acquisitions (2nd edition)
In early 2017, the markets globally witnessed a general decline in volume and deal flow. This decline was precipitated by several notable events, including the United Kingdom’s decision to withdraw from the European Union and the presidential election in the United States. Moreover, China pursued a more strategic approach to outbound M&A, of which the resulting restrictions on capital outflows led to a decline in the volume and value of cross-border M&A transactions since 2016.
M&A activity in Hong Kong similarly witnessed a decline, in line with global market trends. In the first half of 2017, the Hong Kong market witnessed approximately 68 equity acquisitions among companies listed on the SEHK, with an aggregate deal value of approximately HK$45.72 billion (US$5.858 billion).
However, towards the later period of 2017, the market experienced an increase of M&A deals. This was largely driven by a number of mainland Chinese firms and companies investing into or acquiring Hong Kong property companies. Major property M&A deals included the US$23.3 billion spin-off of the share capital of Wharf Real Estate Investment to its shareholders, the US$5.15 billion acquisition of the Centre tower and the Link REIT’s US$2.95 billion proposed sale of assets.
In the second half of 2017, there were approximately 85 equity acquisitions among companies listed on the SEHK with an aggregate deal value of approximately HK$33.3 billion (US$4.26 billion). Examples of such acquisitions include China Investment International Limited’s acquisition of a 28.01% stake in Kenford Group Holdings Limited (SEHK: 464) for HK$200 million (approximately US$25.6 million) and investor Zhang Jinbing’s acquisition of a 75% stake in Chong Kin Group Holdings Limited (SEHK: 1609) from Pioneer Investment Limited for HK$660 million (approximately US$84 million).
In addition, a number of insurance companies have been involved in M&A deals in Hong Kong. According to data from Thomson Reuters, M&A transactions involving Hong Kong insurers reached US$2.84 billion in 2017, up from US$1 billion in 2016. AIA’s US$3.05 billion acquisition of Commonwealth Bank of Australia’s life insurance business in Australia and New Zealand is a good example of a major insurance M&A deal in the wider Asia-Pacific region. Another example is the HK$7.1 billion acquisition of Hong Kong’s tenth largest life insurer, Hong Kong Life Insurance Ltd., by a consortium of buyers including UCF Capital, from Chong Hing Bank and Oversea-Chinese Banking Corp.
Hong Kong continues to retain its appeal in connection with both inbound and outbound M&A activities. Such appeal is fueled by several factors. Firstly, the city remains a central financial and trading hub, both in Asia and globally. Secondly, it offers favourable conditions for large corporations and favourable conditions for trade. Finally, it is significant that Hong Kong shares a cultural and geographic link with mainland China. This has fueled the trend of mainland Chinese companies buying listed companies in Hong Kong, and subsequently using that listed status as a platform for further fundraising.
The Austrian M&A market has been growing continuously. The trend shows a constant rise in transaction volume with a more or less stagnating number of deals. According to the Ernst & Young M&A market analysis for 2017, the year 2016 marked a slight increase of transactions completed by 3.1%, but a massive increase in transaction volume by 66.2%. In 2017, 345 transactions took place, which is 9 transactions less than in 2016. However, the transaction volume increased a further 37% from EUR 10.7 billion to EUR 14.7 billion, of which one-third alone is due to the takeover offer of Vonovia to BUWOG (EUR 5.6 billion). Further significant deals were the acquisition of UPC Austria by T-Mobile Austria and the acquisition of the Russian gas field Juschno-Russkoje by OMV.
The number of foreign investors entering the Austrian market also continues to rise. 38.3% of all deals with Austrian relevance account for foreign investments in Austrian companies, whereas 33.6% of deals concern Austrian investments abroad. Only 28.1% of transactions were purely domestic.
We expect that these trends will continue in 2018, with the real estate, technology, industry and banking sector being the most active markets.
The outlook for outbound deals from the UK looks bright and UK markets reached new highs in the first weeks of 2018 and cash piles have grown, with firms under pressure to deploy funds or face returning funds to investors in the private equity sector. Companies have earmarked M&A as their number one priority for deployment of cash reserves in 2018 as they depart from a focus on organic growth. This should result in intensified competition between companies looking to make strategic acquisitions and private equity, which raised more capital in 2017 than any other year since the financial crisis.
UK dealmakers have appeared to put Brexit fears behind them and despite uncertainties over the UK’s status as a financial hub and its trading relations with its EU neighbours, the UK was the most targeted country in Europe in 2017. A total of 675 deals worth US$127.23 billion targeted UK entities during that year. The consensus is that 2018 should turn out to be an even better and busier year.
The past year saw a significant acceleration of the M&A market, both in terms of number of transactions and their value. Stable GDP growth, relative political stability and low interest rates (which suggest cheap capital) are all expected to support the positive momentum of the M&A market. The return of foreign investment, following several years of reluctance and mistrust, is viewed as a very positive sign, while the increasing potential of local players in some sectors provides reinforces the positive outlook for the market.
According to Transactional Track Record (TTR), during 2017 there were 168 transactions in Colombia, but only in 68 of such cases the deal value was disclosed. Those 68 transactions had a combined value of USD3.28bn, meaning that the number of transactions remained stable compared to 2016 and that there was an important decrease in the value of the transactions in comparison to the same year.
However, there are lofty expectations as to the behavior of the Colombian market for 2018, considering that the local economy is expected to continue its recovery and that the uncertainty atmosphere created by the recent tax reform and the peace agreements entered with the FARC guerrilla is commencing to terminate. Unfortunately, the projections may be affected by the uncertainty during the first quarter of the results of the 2018 presidential election, that may change the political and economic environment in Colombia.
2017 marked a profound upturn, courtesy of an European economy that consolidated its recovery, favourable financing conditions and a stabilization of macroeconomic and political environments. The value of French corporate deal making has thus surged to its highest level in a decade: according to Thomson Reuters, M&A transactions involving French companies jumped by 50% in 2017 to reach 205 bn euros, their highest level since 2007. The dynamic seems fairly general with a good diversity of cross-border, domestic consolidation and restructuring operations. The Argos Mid-Market index, which tracks the price performance of mid-market LBOs in the euro area, reached its highest level ever in the third quarter of 2017, with an average multiple of 9.5 times Ebitda. Large French groups are also reinvesting M&A operations at a French as well as at a transnational level, as epitomised by Unibail Rodamco's acquisition of its Australian competitor Westfield.
2017 continued a strong run for the New Zealand M&A market. Much of this deal flow was driven by the significant fund raising activities of New Zealand and Australian private equity throughout 2016 and 2017. 2017 also showed an increase in the number and size of transactions undertaken by New Zealand funds.
Overseas investment remains a significant part of the New Zealand M&A market, particularly in larger transactions, with continued interest from Australia and Asia (although with a softening of interest from China). It is anticipated that 2018 may see offshore interest tempered by a recent shift in New Zealand’s overseas investment laws (as noted further below).
2017 also saw a further disparity between the number of new listings on the New Zealand stock exchange and public company takeovers, with only one IPO occurring in 2017 and several listed company takeovers announced by offshore investors. The relatively inactive IPO market seems to be a consequence of the willingness of funds or trade buyers to match or exceed IPO pricing.
The Egyptian economy is currently seeing major M&A activity mainly fueled by regional, international and local private equity and financial institutions. The general expectation is that such activity is likely to increase during the second part of 2018 after the completion of the upcoming presidential election.
In 2017, worldwide M&A activity exceeded $3.5tn for the fourth consecutive year. 2017 was the fifth most active year on record in terms of deal volumes representing the continuation of an unprecedented period of dealmaking. The global conditions that drove dealmaking in 2017 remain at the time of writing - buyers continue to seek access to new markets and take advantage of continued low interest rates, whilst private equity funds actively seek to deploy capital. We anticipate that, despite global political and regulatory challenges as well as continuing high equity market valuations, 2018 will see further strong deal activity.
The M&A market was very active in 2017 and the auspices are good for 2018. The number of transactions in 2017 topped a historical high (although the overall deal value was significantly lower) and the perception is that asset valuation is generally at the high end of the spectrum. Last year, Entirely domestic deals account for approximately half of the number of deals, worth one-third of the total.
Public M&A activity has been strong in recent years and activity remained steady in 2017. While there were fewer US inversion related deals than in most recent years, there were a reasonable number of major public company deals, including the acquisition of Fyffes plc by Sumitomo Corporation for €751 million (February 2017), the acquisition of Innocoll Holdings plc by Gurnet Point Capital for $209 million and the acquisition of Nexvet Biopharma plc by Zoetis for $85 million (both July 2017). There have also been a number of significant private M&A deals.
There were different trends. Big ticket M&A lived off very large fire sales from companies involved in the lava-jato scandal. Out of companies and pockets of activity caused the spike. Big deals had to be closed in record time, and there was a flight to quality. This is phenomena, however, is restricted to the traditional market heavy hitters who hold the relationships and have the profile necessary to capture the work. The good news is that this depression is currently being reverted, and the M&A market in general is likely to pick-up. Other aspects worth mentioning are the Brazilian market credit constrain – BNDES and other public banks no longer have the same ability to finance Companies at the same level and prices of the past. Such lack of liquidity may put the Brazilian capital markets and private equity firms as major sources of finance to publicly held and middle market companies, respectively. In addition, the Brazilian assets are still undervalued (i.e. the market believes there is sufficient room to increase the current the stock exchange level from 84,000 points to 100,000 points), which should have a positive impact on the opportunities for the private equity industry.
Following the upturn in Cyprus economy that has been evident over the last few years the market in Cyprus is showing significant growth both in terms of incorporation of new companies as well as the M&A sector. In particular, over the last 2 years there has been a significant increase in the volume of both local and cross-border mergers within the EU region.
Furthermore, in light of recent developments relating to BREXIT and taking into account that the Cyprus legal system is also based on common law and to a large degree has similarities to the UK legal system this could lead to a further increase in inbound cross-border mergers of entities which would need to maintain their head office within the EU.
During 2017, a continuing optimistic outlook for the Norwegian economy, resulting from improved oil and gas prices and weaker currency, in combination with a strong global M&A market and supportive fiscal and monetary policies, continued to drive the Norwegian deal activity. In number of transaction, the market was up 23% compared with 2016. During the same period, the reported deal value increased from €14,489m for FY2016 to €38,747m for FY2017, while the average reported deal sizes increased from €133m for FY2016 to €391m for FY2017. In fact, 2017, turned out to be the year with both the highest M&A volume and the overall highest reported deal values since 2006/2007.
Entering 2018, the Norwegian M&A market seems to continue increasing, at least for now. However, we will not be surprised if the Norwegian deal volumes retracting somewhat in 2018 after seeing record levels in 2017. This trend has, for example, lately been observed in the global markets, with Q3 2017 being the slowest quarter since 2013 in terms of deal count and values.
The market has to an extent slowed over the past few months, in particular in anticipation of the implementation of the MCL.
For the reasons noted in question 1 above, the due diligence requirements for acquisitions of shares in Myanmar companies by foreign investors are complicated where such investment would result in the conversion of a Myanmar company to a foreign company. Investors need to assess the implications of restrictions on foreign companies doing business in Myanmar such as under the TIPRL to their investment. An MIC permit or endorsement may be required for such investments.
In addition, Dica’s practice was to require companies whose classification changed following a share transfer (e.g. from a Myanmar company to a foreign company or vice versa) to apply to amend its registration number. Its previous practice was to not permit a Myanmar company to change its registration to become a foreign company, effectively prohibiting the acquisition of Myanmar companies by foreign investors. Dica’s practice however started to change in early 2017 and the change in classification of a company is now possible.
Share acquisitions are likely to become more common once the MCL comes into force.
Following a long period of economic recession and a number of financial stabilisation programmes, Greece’s business climate for M&As seems to be on the upraise. The main source for transactions is the Hellenic Reconstruction and Development Fund (HRADF), which is responsible for the divestiture of the public stake in several of the most prominent corporate organisations in Greece in a rigid privatisation programme involving the Hellenic Petroleum, the electricity incumbent PPC, the gas transmission operator DESFA, the natural gas supply corporation DEPA,the Hellenic Post corporation ELTA, the telecommunications company OTE and others.
The reported number of transactions concluded in the first half of 2017 has doubled comparing to the same period in 2016 (21 transactions in H1 2017 compared to 10 transactions in H1 2016). The total H1 2017 transaction value has also risen (1.21 US$b compared to 0.23 US$b in H1 2016). The great majority of such transactions (57%) was inbound.
According to the latest statistics from MergerMarket, German M&A is closing in on the record full year value of €94.9bn (672 deals) seen in 2005. At the time of writing, 2017 deals had reached €92.4bn across 602 deals. The surge in dealmaking was largely due to an increase in inbound activity which reached €25.9bn (90 deals) in Q3. This represents a 99.4% share of DACH’s quarterly value. In 2017, German inbound dealmaking exceeded all annual values, helped by Q2’s mega-merger between Praxair and Linde. Germany’s targeted YTD deal value also overtook that seen in France (623 deals, €76.9bn) for the first time since 2013, though France still saw the most deals.
2017 was a very strong M&A year with 24 billion euro of transactions involving a Belgian acquirer, seller or target.* Main transactions were BASF’s acquisition of Solvay’s Polyamide division, Sibelco’s purchase of Fairmount, Carlyle’s acquisition of ADB Safegate and Praesidiad, Bpost’s acquisition of Radial, Clayton, Dubilier & Rice’s 40% investment in Belron and Euronav’s end of the year acquisition of Gener8 Maritime (closing still pending). 2018 should be as active, with 6 announced IPO’s, including the sale of a portion of Belgian state-owned bank Belfius.
* According to the financial newspaper De Tijd and Dealogic
2.1 The M&A market in Vietnam is strong and vibrant, notwithstanding its relatively small size in comparison with more developed markets.
2.2 Numbers and overall value of completed M&A transactions in Vietnam have grown steadily during the last two decades (and in particular during 2016 and 2017), and are expected to continue to grow strongly during 2018 and 2019 and beyond.
2.3 Although Vietnam and participants in its M&A market were disappointed with the withdrawal of the United States from the Trans-Pacific Partnership (the TPP), the fact of the TPP not having come to fruition in its USA-inclusive form as hoped has done nothing to suppress the enthusiasm of the foreign investment community for M&A transactions in Vietnam.
2.4 The Vietnamese Government continues to achieve material progress in simplifying and streamlining administrative and regulatory procedures in Vietnam. These initiatives have made and are expected to continue to make material positive contributions to the strength and vibrancy of the Vietnam M&A market.
2.5 Vietnam-domiciled target companies continue to present excellent value propositions for the international investment community, in an economy which continues to grow consistently at rates above 6% and is clearly destined to become one of the world’s powerhouse economies as the 21st century unfolds.
The Swiss M&A market had a strong start into 2017 with the announcement of the acquisition of Actelion by Johnson & Johnson (deal value: USD 30 billion). In May 2017, Clariant and Huntsman announced another megadeal. However, after the announcement of the planned merger, shareholder opposition by White Tale was formed. During its campaign White Tale increased its participation in Clariant to over 20%. In October 2017 Clariant and Huntsman announced to abandon the merger. Compared to 2016, while deal value went down, the number of deals remained stable. Last year brought prominent campaigns by activists, including Clariant/WhiteTale, Nestlé/ThirdPoint, Credit Suisse/RBR and GAM/RBR. Given the good market conditions and favorable lending terms, the outlook for 2018 is positive.
As of the end of 2017, the M&A market seems to be recovering after the decline of the previous three years, which recovery is stimulated by an improvement in industrial production, comparative cheapness of assets and deferred demand for transactions.
Major M&A transactions include the following:
- An investment consortium comprising ‘Rosneft’, the ‘UCP fund’ and the Singapore trader ‘Trafigura’ acquired Indian ‘Essar Oil’ in August 2017. The share of the Russian party in that transaction is estimated at $ 9.5 billion.
- Acquisition of American service provider ‘Parexel’ made by investment fund ‘Pamplona Capital Management’ for $ 5 billion in September 2017. This was the largest service sector deal in the history of the Russian M&A market.
- Investment holding ‘LetterOne’ acquired the British retail network ‘Holland & Barrett’ for $ 2.3 billion in June 2017. This is not only the second-largest transaction in the first half of 2017, but also the largest deal in retail business since 2009.
Based on the information available at http://mergers.akm.ru, the total volume of transactions in January-November 2017 exceeded by 15.9% the result of the same period of 2016, reaching $ 39.2 billion (as opposed to $ 33.8 billion in 11 months of 2016). The number of transactions for January-November 2017 also increased in the annual comparison - by 6.5% to 410 transactions, compared to 385 in January-November 2016.
The market is going through a favorable period, with a reasonably high number of transactions (carried out both by strategic investors and private equity funds).
The stock market in Qatar has never been a very active market with only 45 listed companies. The last mergers of listed companies being the merger of Qatar Shipping and Qatar Navigation and of Barwa and QREIC took place in 2010. Recently in the government sector the merger of Qatargas and Ras Gas has taken place.
There was a dramatic increase in deal volume toward the end of 2017. U.S. public M&A in particular enjoyed a strong fourth quarter as both volume and deal value accelerated dramatically, reaching the second-highest quarterly dollar value of announced deals in the last decade. Announced deal value for U.S. public deals during the fourth quarter spiked to $317 billion while announced dollar values for the full year, taken as a whole, declined 28.9% from 2016 to $621.9 billion.
Total deal value involving U.S. targets, both public and private, was roughly $1.5 trillion in 2017 (as compared to $3.7 trillion globally). Increased valuations resulting from the boom in U.S. equity markets did not seem to deter buyers as interest rates remained low, allowing companies to obtain attractive financing for possible transactions.
The Nordic IPO market, and the Swedish in particular, has been notably strong in recent years and 2017 turned out to be a record year in terms of, inter alia, the number of listings.
The Swedish M&A market has recovered strongly after the global financial crisis and the level of M&A activity in Sweden has been relatively high during the last couple of years. Naturally, the majority of the transactions have been private deals, however, there have also been several public deals. As a consequence of the favourable market conditions of the Swedish securities markets, IPOs have played an important role with respect to exit strategies of e.g. private equity companies. This has naturally to some extent reduced the number of private deals (especially in large cap). In the most recent time, we have however seen a significant number of “dual tracks” processed where the choice between a private transaction and an IPO has been kept open until quite late in the process. This trend is accountable to the uncertainty on whether the current quite high valuations on the Swedish stock market will apply also going forward. If there is a shift in stock market valuations, a further increase of private M&A is to be expected as well as an increased number of public takeover offers.
M&A activity in the Philippines have been robust over the past couple of years.
The M&A environment is currently very healthy and the end of 2017 has seen a particularly high level of activity in relation to trading companies, primarily in the resources sector. Schemes of arrangement are generally the preferred method of effecting a public takeover, mirroring market practice in the UK.
The number of M&A transactions by Japanese companies hit a record high in 2017 with steady growth since 2012, after experiencing a slowdown due to the global financial crisis in 2007 and 2008.
Outbound transactions are sustainable in terms of both the number and value of the deals as many Japanese companies are seeking opportunities for outbound transactions to expand their markets outside Japan.
Global private equity funds have shown a strong presence in recent large-scale transactions in Japan, such as the acquisitions of Calsonic, Hitachi Kokusai Electronics and Hitachi Koki by KKR, the acquisition of Toshiba Memory by a consortium led by Bain Capital, and the acquisition of Asatsu-DK by Bain Capital.
Isle of Man
The M&A market in the Isle of Man is currently best described as being fairly active.
The M&A environment is currently very healthy and can be said to be quite active.
Bermuda is known as a first class centre for international business. 2015 saw significant merger and acquisition activity for Bermuda headquartered (and often international stock exchange listed) companies in the (re)insurance market. In general 2016 has seen less merger and acquisition activity in Bermuda.
British Virgin Islands
2017 was another relatively active year for BVI M&A activity reflecting the global market which was the fifth most active year on record in terms of volume. Total volume declined slightly from 2016 while deal counts remained steady.
Whilst global activity has declined year-on-year, the offshore sector recorded an increase in deals by both volume and value. We consider the typical M&A motivations remain as relevant as ever; scope for efficiency savings, gaining access to operational or sector expertise, upgraded systems and IT structures and expansion into adjacent industries and geographies. In addition, rapid technological and logistical advances are making industry convergence all the more common, with ‘Fintech’ becoming the new buzzword for this phenomenon.
While 2016 was an unfortunate year for M&A activity in Turkey, it looks like transactional activities started to pick up in 2017 with increases in both deal numbers and deal volume. The cautious attitude of investors is understandable considering political developments, including the coup attempt followed by a state of emergency declared in the second half of 2016 and the referendum in April 2017 for switching to a presidential regime from a parliamentary one. However, prospects for the upcoming year seem quite positive based on the improving M&A trend in 2017.
The market witnessed a few M&A deals in recent times in sectors such as insurance, oil & gas, banking & financial services, real estate, healthcare, Fast Moving Consumer Goods (“FMCG”), construction & infrastructure, power etc. buoyed largely by divestment from certain sectors of the economy by investors, and relative stability in the foreign exchange (“FX”) market.
As the 2019 general elections scheduled for Q1 2019 draw near, we envisage another lull in the market due to perceived political risks.
In 2017, the Hungarian M&A market experienced a rise of 150% as compared to 2016, reaching an estimated market value of around 4 billion US dollars, and coming to the most successful year since 2010. The market continued to be dominated by strategic investors over financial investors on the one hand, and on the other hand by domestic transactions over international transactions.