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Clifford Chance launches Global M&A Trends Report 2018

31 January 2018

Clifford Chance launches Global M&A Trends Report 2018

As boardrooms and investors look forward to a strengthening economic outlook in 2018, Clifford Chance takes a look at some of the forces and trends that will shape the global M&A environment.

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

"Traditional businesses will continue to grapple with sizeable challenges in 2018 - there is a need for urgent transformation and innovation in highly competitive markets, improved agility in dealing with accelerating regulatory change, and - for public companies - enhanced engagement with investors in the face of growing activist pressure. These are just a few of the evolutionary shifts and market changes which we expect will drive M&A activity in the coming year."

In this year's report, Clifford Chance's M&A experts consider four major themes and their impact upon the global M&A market in 2018.

    1. Data – a new asset class comes of age

The emergence of data as a key asset class, alongside the spiralling impact of cyber-attacks and increasing scrutiny and sanctions from data regulators, is changing how buyers across all sectors approach deals. With the vast majority of global data lying in 'non tech' companies, 2018 will see established companies making more of their data, spurring the continued growth of mid-market M&A activity seen in the last year and intense activity in ‘at risk’ industries such as retail and consumer businesses.

At the same time, incoming data privacy regulation from the EU's General Data Protection Regulation (GDPR) to the People's Republic of China's recent cyber-security law, is becoming a key driver of strategy and deal structuring.

Luke Grubb, Head of Clifford Chance's Asia Tech Practice based in Singapore explains:

"Diverging standards can close off rather than create opportunity. Achievements of some of the biggest Chinese tech giants, which are at the cutting edge of AI and big data, may not export well into markets where stricter personal data regulation could undermine their data collection and processing models."

    2. Shareholder activism – the next generation

2017 saw a 99% increase in activist campaigns against European headquartered companies compared with 2014 (Source: Activist Insight) – a clear demonstration that activists are on the march. Activism is spreading from its traditional North American markets to Asia and Europe and strategies are diversifying. No business is immune, irrespective of traditionally susceptible sectors and sizes, and listed companies need to prepare and respond with a more tailored, considered and transparent approach.

Katherine Moir, Corporate partner in Clifford Chance's London office, says:

"A company’s best defence is a clear and compelling strategy, strong governance and regular and effective shareholder communications. Boards and management need to scrutinise their own decisions and strategies more closely. Those who engage in a transparent and constructive way may unearth competitive advantage.”

    3. Foreign Direct Investment and M&A

Clifford Chance's Global M&A Trends Report 2018 observes that cross-border investment is increasingly politicised leading to diverging attitudes and rules. Trends include:

  • 'America First' sees greater scrutiny by CFIUS of foreign buyers of a broader range of US businesses and foreign businesses with US operations.
  • Europe remains a region that is very open to FDI, but diverging approaches and political sentiments characterise individual countries, and the latest ‘direction of travel’ in attitudes is an increasingly important factor for deal-makers.
  • In the wake of its vote to leave the EU, the UK government is seeking to balance the need to remain 'open' for foreign investment while bolstering its powers to intervene on national security grounds.
  • In China, authorities continue to restrict outbound investments that do not comply with its strategic policies and are also now encouraging investment into the country in certain areas such as financial services.

The conflicting perspectives on international investment set a challenging stage for cross border M&A. And as the International Monetary Fund warned in its recent Global Economic Update: "an increase in trade barriers and regulatory realignments…would weigh on global investment and reduce production efficiency.”

    4. Private Equity: Under Pressure

Levels of undeployed capital available to private equity fund managers hit the record of US$1 trillion at the end of 2017, up from $838bn in 2016 (Source: Preqin). With these vast sums available, private equity sponsors are in fierce competition for quality assets as investors seek returns comparable to the past. As a result, traditional operating and compensation models are under pressure and sponsors need to innovate to keep up. Innovation is taking many forms – sponsors are diversifying in asset classes and geographies, investing in sector specialists and adapting their funding structures with increasing use of credit instruments.

Andrew Whan, Private Equity partner in Clifford Chance's Hong Kong office, says:

"To access opportunities in the market, sponsors are having to adapt. Investments focus on hedging risk and houses are adapting their internal structures, raising funds for a specific sector or point on the value chain."