Clifford Chance

Momentum remains despite growing M&A obstacles

Clifford Chance global M&A update and outlook for H2 2017

• A 'wait and see' approach by companies congests the M&A pipeline
  
• Organisations have the cash and dry powder to do deals
  
• Darwinian anxieties and the need for new routes to growth drive strategic minority investments in innovative businesses
  
• Emerging 'ways through' capital controls and robust antitrust requirements
  

The remainder of 2017 could see significantly more deal activity, says Clifford Chance in its Global M&A update, in part underpinned by companies' willingness to spend on technologies and innovation to compete and stay ahead.

Clifford Chance, global head of M&A, Guy Norman, said:

'Shareholder voices and activism are leading to corporate break-ups, sales of non-core assets and new acquisitions. The low-growth environment continues to drive boards to take action, which is promising for activity levels as we head to the year end.'

The past few weeks have already seen a number of cross-border deals announced, including Vantiv/Worldpay, Cheung Kong's purchase of ista and the US$12bn bid by a Chinese consortium to take Singapore's Global Logistic Properties private.

The first half of 2017 had been sluggish, with M&A activity down by 24% by value in H1, compared to the previous six months. A 'wait and see' approach pervaded many multinationals' boardrooms as a cocktail of Chinese capital outflow curbs, political instability and economic uncertainty put a brake on deals. Rising government, antitrust and regulatory hurdles in many jurisdictions added extra complexity.

Antitrust hurdles

Despite the high demand data-rich companies, their sale or purchase now raises full-blown competition issues (at least in Europe) which make multi-jurisdictional transactions far more likely to be scrutinised or challenged where there is a significant data element.

Clifford Chance antitrust partner, Nelson Jung, London, said:

'Globally we are seeing increasingly inconsistent merger-control procedures and greater scrutiny of foreign takeovers on non-competition grounds. Navigating these complexities requires careful planning, understanding of local sensitivities and early identification of remedies.'

Private Equity

Record levels of dry powder are driving activity in private equity, as financial investors look to capitalise on volatile currency markets and corporate break-ups.

Clifford Chance, M&A partner, Christopher Sullivan, London, said:

'There are always opportunities for the agile, but in a time of continuous disruption, this is particularly the case.'

China capital curbs

China's restrictions on capital outflows have meant a clampdown on Chinese investment in non-core or 'irrational' purchases, including real estate, hotels, movie studios, entertainment and sports clubs. Deals that support China's 'One belt One Road' strategy are likely to fare far better. The Clifford Chance update includes tips on innovative deal structures and approaches more likely to succeed.

Clifford Chance M&A partner in Shanghai, Glen Ma, said:

'Using innovative security and fund flow structures, we are helping bidders address the regulations in a meaningful way, while ensuring the deals get done.'

Regionally, deal activity in Europe remained robust in the first half of the year, with Germany continuing to out-perform, due in part to strong domestic and inbound activity from the US (eg. Praxair/Linde) and prioritisation by Asia Pacific bidders. A flat US market saw some strong inbound activity from Europe, including the UK's BAT and Reckitt Benckiser both making bids for US assets. In Latin America, Africa and Asia Pacific, deal activity was down in the first half of 2017. The Middle East saw strong activity in H1 2017, with rising inbound investment from North America.