Clifford Chance

Uptick in Q2 Global M&A activity gives glimmer of hope after five consecutive quarterly declines

• Latest Global M&A Trends report from Clifford Chance highlights increasing importance of cross-border M&A
• Emerging markets and Europe creating opportunities for M&A activity in today's volatile market

London, 13 July 2012: Global M&A activity in the second quarter of 2012 saw a 21% increase on the first quarter of the year, according to the latest report on Global M&A trends from leading international law firm Clifford Chance. Launching its report today ("Our Insights into M&A Trends - Global Dynamics,") Clifford Chance highlights the following key trends:

• Global M&A activity down 10% in H1 2012 compared with H2 2011, with total deal value falling from US$ 1,035 bn to US$ 930 bn
• However, activity picked up between April and June 2012 in all regions – a 21% increase globally on the first quarter of the year
• Cross-border M&A comprised 43% of all M&A activity in H1 2012 (by value), and cross-border M&A between regions accounted for 30% of total activity - showing that businesses looking for growth are prepared to invest further afield
• Emerging markets continue to provide focus for M&A activity, amounting to US$ 208 bn in first half of the year, as businesses search for growth in these markets
• Opportunities are also emerging in Europe, as quality assets come onto the market. European activity has tended to be domestic/ intra-regional (US$ 224 bn in H1 2012), with inbound investment coming primarily from North America (US$ 83 bn). Europe was the top destination for emerging market outbound M&A in H1 2012

The report shows that M&A continues to  be driven by high levels of cash on corporate balance sheets and appetite (and opportunity) to access growth, including in overseas markets. A focus on core business activity and the changing regulatory landscape are driving divestment of peripheral business units amid turbulent market conditions. The Energy, Mining and Utilities sector is continuing to dominate global M&A activity as investors fight for energy and natural resources assets.

Challenges to M&A over the coming months include continuing non-resolution of the Eurozone crisis, economic slowdown and volatile market conditions. Shareholder pressure and activism are also putting M&A decision-making under the spotlight.

Matthew Layton, Global Head of Clifford Chance's Corporate practice commented: "Despite the continued decline in global M&A activity since the latter part of 2011, there is a glimmer of hope that the global M&A market may be recovering. In the period since April, there has been a tentative uptick in activity levels. Whether this uptick is sustainable remains to be seen. With excess cash on corporate balance sheets and limited prospects for organic growth, businesses across many sectors have the appetite to do deals in order to achieve growth targets. However, macroeconomic and geo-political factors are continuing to cause great uncertainty and businesses remain extremely cautious about the future."

The Global M&A Trends report is published as Mergermarket confirms Clifford Chance's ranking as Number 1 in Global M&A for H1 2012, underlining the firm's pre-eminent position in advising the world's leading businesses on their M&A mandates in the current difficult and volatile market.

Our Insights into M&A Trends – Global Dynamics examines some of the key trends and challenges affecting global M&A activity, and strategies for managing risk, including:

• Growth markets - according to Clifford Chance's recent global survey of business leaders 'Cross-border M&A: Perspectives on a changing world' carried out by the Economist Intelligence Unit (EIU) on behalf of Clifford Chance, some 56% of large companies are focusing their M&A strategy on the growth markets. Overall, growth markets M&A activity in H1 2012 was worth US$ 208 bn. The relative contribution of the BRIC markets to this activity decreased in the period, with many investors looking to other areas of Latin America and South East Asia, as well as Africa and the Middle East, as the new frontiers for high returns.
• Financing M&A - with 30% of large companies concerned about availability of financing for their M&A activity in the next two years (according to the survey), the Global M&A Trends report considers how ever-increasing capital requirements on financial institutions, together with the continuing uncertainty in the Eurozone and in the economy globally, are impacting liquidity. High yield markets continue to act as an important source of acquisition finance.  The North American market is the deepest and most mature, but the European and Asian markets are developing quickly.
• Navigating antitrust risk - merger regimes and new regulations have proliferated, imposing significant financial and time costs in terms of merger planning.  In newly established regimes, procedures remain unclear. Protectionist measures continue to impact activity, with foreign purchasers often treated differently in merger control reviews and subject to foreign investment clearance processes. This is a particular risk in the defence, technology and infrastructure sectors.
• Resource nationalism - Recent high-profile government intervention in Argentina, Bolivia and Mongolia has reinforced international investors' focus on the risks of resource nationalism. Bilateral investment treaties, political insurance and contractual provisions are among the tools investors can deploy to help protect their interests.
• "Shareholder spring" – shareholder pressure was identified by respondents to the survey as a driver for pursuing M&A activity, but also as a barrier to deals. In the first half of 2012, shareholders have become increasingly vocal, including in relation to executive remuneration. Open communication with shareholders is critical to navigating the shareholder spring.

Matthew Layton concluded: "The outlook for the remainder of 2012 is uncertain. We are unlikely to see a sustained recovery in M&A activity until a period of stability emerges. However, there are opportunities in many regions and sectors, and compelling deals with strong strategic rationale will still get done. We are also likely to see further spin-offs and de-mergers, as well as joint ventures and  other strategic alliances."

Clifford Chance topped Mergermarket's global M&A legal advisory league table by deal value for H1 2012 – advising on 103 deals worth £ 101,741 million. The firm advised on six of the top 10 global deals by value. The firm also achieved top rankings across a number of regions: 1st in Europe by value, 1st in UK by value, 1st in France by value and volume, 1st in Germanic region by value, 1st in Benelux by value, 1st in Nordic region by value, 1st in Greater China by volume. Recent deal highlights include advising Pfizer on the sale of its nutrition business to Nestlé for US$ 11.85 bn; the Royal Bank of Scotland Group on the sale of the RBS Aviation Capital business for US$ 7.3 bn; and International Power in connection with the £ 6.4 bn recommended cash offer by GDF SUEZ, to acquire the ordinary share capital of IPR not already owned by it.

The H1 2012 M&A data is taken from Mergermarket's H1 2012 M&A Round-up report, July 2012 and from data produced by Remark, taken from mergermarket.com.