Clifford Chance

China takes centre stage as global M&A landscape shifts

• China outbound investment surges 180% to US$187.5bn
• Protectionism changes deal-making environment
• Corporates pursue transformative technologies

Global M&A activity has experienced a rollercoaster year in 2016, and 2017 promises more volatility and uncertainty, says international law firm Clifford Chance in its annual analysis of trends in global M&A.

Global M&A fell 17% in the year to the beginning of November with deal value totalling US$2.7tr, compared to US$3.3tn over the same period in 2015*. Deal volumes also fell by 7%. Activity picked up in September and October, with both months recording bumper values exceeding the same months in 2015. However, the outlook remains volatile and uncertain.

North America, the world's largest M&A market, was down 23% year-on-year and recorded a 33% fall in domestic M&A in 2016. Asia Pacific fell 19% and Europe recorded a 6% fall (although German M&A grew by 20%). Brighter spots for deal making activity were to be found in the Middle East and India.

Guy Norman, Global Head of Corporate at Clifford Chance, said:

"Despite a new set of challenges, there remain strong pockets of transactional activity, principally in the tech and industrial sectors. The continuing availability of cash on balance sheets, low interest rates and liquid acquisition financing sources mean that the quest for growth through M&A will likely continue into 2017, even if somewhat tempered by political and economic headwinds.”

The full report, published in January 2017, will include in-depth studies of:

China Outbound

Chinese outbound M&A surged 180% by value in 2016 to US$187.5bn as Chinese companies continue to seek diversification and exposure to growth industries in Western markets. Chinese cross-border M&A was up 223% by value in Europe and 558% in North America.

The increasing flow of Chinese outbound activity has become a source of concern to Chinese authorities. Recent attempts to curb outflows and combat further depreciation of the renminbi may make it harder for companies to move capital offshore to fund M&A.

Interventionist stakeholders

National and multi-jurisdictional authorities have been intervening in deals more vigorously and more frequently over the period, particularly in the EU and the US. Protectionism has also been on the rise, with Chinese buyers in particular subject to stringent reviews on national security and public interest grounds in the US, Australia, Canada and Germany.

Transformative technologies

Technology will remain the hottest sector for M&A in 2017. Companies are highly aware that securing the right technologies enables them to proceed with the critical task of reshaping their businesses for the digital age. This is creating an upswing in technology M&A and other strategic relationships. It also brings a new set of legal risks and challenges for tech-related M&A transactions, from structuring to integration.

Tax: Trump and BEPS

The tax landscape of 2017 will be dominated by two very different developments: the election of Donald Trump and BEPS. Donald Trump has proposed tax reforms to repatriate worldwide profits of US headquartered groups. If implemented, this will mean major restructuring for these entities. At the same time, the OECD action on Base Erosion and Profit Shifting (BEPS) is likely to be implemented in 2017. Its effects will include reducing the tax benefits of debt financing, creating heightened risk for the acquisitions of complex legacy structures and rendering many existing finance and acquisitions structures obsolete.

During the period of the data sample*, Clifford Chance advised on 219 deals totalling over US$140bn, including advising State Grid Corporation of China (SGCC) on its Russian joint venture with JSC Rosseti, the largest power grid company in Russia, and Baofeng and Everbright in their successful bid through the Shanghai Jinxin investment fund to acquire a majority stake in MP & Silva Holding, a leading international sports media rights group.