Clifford Chance

Momentum in US and Asia Pacific M&A stands firm against headwinds following record breaking year for global M&A

Following a record breaking year for M&A in 2015, appetite for deals is set to continue despite challenging market conditions that may follow, according to international law firm Clifford Chance’s latest Global M&A Trends report.

The latest report looks at what's next for M&A, following a strong year for mega-deals over the last twelve months. Activity is being driven by North American buyers who continue to have access to favourable financing conditions and excess cash and who are, in some cases, structuring their acquisitions as corporate inversions or using other tax-driven deal structures.

We are also seeing a significant regional M&A boom in Asia Pacific. Despite continued international concerns over the slowdown in China, Asia Pacific M&A increased 63% year-on-year. This ‘mini boom’ is being driven largely by intra-regional deals, with Chinese companies’ continued pursuit of regional expansion and Japanese investment in the wider region making a significant contribution to activity.

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

“In 2015, we saw the pipeline of potential major M&A deals coming to fruition, many of which had been contemplated for some time. As companies had built cash reserves and acquisition finance conditions were favourable, we saw them begin to come to market.

However, while 2016 is expected to continue to see some high value M&A, concerns around the Chinese (and world) economy and collapsing oil and commodity prices may see caution return to temper activity once again. Increasing political tensions globally, the prospective US election and ‘Brexit’ uncertainties may also impact activity as the year develops.”

The Clifford Chance Global M&A Trends report analyses Thomson Reuters 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 transactional experience to deliver insights into future M&A developments.

Key findings from the 2016 report include:

TMT, Consumer/Retail and Healthcare lead the way -  This trend is expected to continue in 2016 with increased M&A for telecoms infrastructure, robust M&A activity in the Food industry sector, and growing Chinese outbound investment in Healthcare businesses.                                                                                                                    

Fierce competition in the Infrastructure sector – A growing number of investors are making the most of the available capital in the maturing Infrastructure M&A market. Funds taking advantage of seller-friendly conditions will drive an increased volume of secondary transactions in 2016.

Financial Services M&A stimulated by FinTech - Financial Services M&A is being stimulated in part by the development of disruptive technologies, as well as the continued divestment of non-core assets.

Mega-deals being driven by abundant finance – High liquidity and the historically low cost of debt financing in 2015 enabled jumbo financings which helped facilitate the mega-deals. While debt terms have loosened generally, flexibility is required in choppy markets- which may mean changing a few debt terms or, in more extreme cases, looking at other finance options.

Whilst momentum for deals perseveres, geopolitical factors may also impact M&A over the coming year. A vote from the UK to leave the EU may bring caution to the M&A environment due to the risk of market instability. Continued depressed oil prices will lead to increased pressure on oil industry players in 2016, with constrained financing options and an increase in buying power of cash rich buyers with strong balance sheets potentially leading to long awaited consolidation in the sector.  The global landscape for M&A also faces the challenge of the recent OECD "BEPS" proposals to rewrite the international tax rules. New restrictions on tax deductibility of debt may reduce returns for equity investors; and this, coupled with the uncertainty as to which jurisdictions implement which rules, may significantly affect M&A deal structuring.