Clifford Chance

2014 set to be the strongest year for global M&A since financial crisis

Deal values in 2014 are in line to top levels not seen since 2007, according to a preview of international law firm Clifford Chance’s latest Global M&A Trends report.

Looking back on a strong year for global M&A, the report shows which geographies and sectors have slowed down, and which have raced ahead. The US market has enjoyed a strong period of M&A activity with total deal values up and growth driven in part by inbound deals. Technology features prominently in the report with the TMT sector seeing strong M&A activity over the last 12 months, and an increasing emphasis on cyber security and data privacy seen at the due-diligence stage of deals.

2014 snapshot

• Europe and Asia Pacific have continued to see growth in M&A deals. The US once again proves its resilience with deals totalling US$ 1.185trn in 2014 to date, a 54% increase year-on–year and including a 179% increase in inbound deals by value.
• Cross-border M&A continues to rise, with M&A activity between the five main regions accounting for 25% of total global M&A deal value.
• Healthcare and Consumer Goods/Retail become the fast rising sectors for M&A activity.
• Financial sponsors who traditionally focused on private equity in developed markets have diversified into multiple asset classes, new niche sectors and different geographies. In particular, sponsors are shifting their focus away from the low growth developed economies and into high growth markets such as those in Africa where inbound investment from the US has increased materially over the year, and intra-African M&A has risen nearly four-fold.

Guy Norman, Global Head of Clifford Chance's Corporate Practice, said:

"2014 has been a strong year for global M&A. As corporates seek to expand their global footprints and consolidate within their industries, and financial sponsors look for higher returns in new markets and sectors, we have seen strong levels of cross-regional M&A. This is typically financed with excess cash, or through tapping the global pools of liquidity which are increasingly available from a growing range of sources and with very attractive pricing.

"As we move into 2015, the current economic and political backdrop means the outlook for M&A activity is difficult to predict, but despite global uncertainties and challenges, there are also attractive opportunities for those who are informed, agile and prepared to take manageable risks."

Looking ahead to 2015

The Clifford Chance report highlights the following themes for the coming year:

Private Equity and Africa: In the ongoing search for higher returns we expect diversification by sponsors to continue.  The volume of transactions in Africa is increasingly due to a number of private equity exits given their cycle in the market.  This market evolution greatly broadens the nature of the assets being sold and will create opportunities not just for traditional African private equity investors but also for developed market private equity investors and international corporates, in some cases to invest in Africa for the first time.

TMT and Cyber-risk: TMT sector M&A is showing no signs of slowing down, as the underlying fundamentals support consolidation and convergence. Cyber security and data privacy compliance are set to provide an increasingly important focus in deals across sectors where technology is important.

M&A Financing: Liquidity in the capital markets has contributed to a general sense of buoyancy in conditions for debt financing which can only be accretive for the prospects for M&A in 2015. Continued development of capital structures, a growing choice of financing products, a resurgence in bank lending alongside new institutional lenders and a convergence of terms between financing products and market standards has made access to the global pools of liquidity available to finance M&A even easier for borrowers. Next year, bespoke and innovative financing options for large cap-deals are expected to continue to lead the way.

The Firm’s Global M&A Trends report analyses Mergermarket data and brings this together with the firm's market intelligence, to review trends and provide insights into global M&A activity.  The report draws on the firm's geographical, sector and M&A experience to deliver insights into future M&A developments. The full report will be available in January 2015.