Global M&A Down, But Not Out, After Weathering 2016’s Surprises
With volatile markets driven by political upsets like the U.K.’s Brexit vote, a mounting number of failed deals and a hangover from last year’s record shopping spree, 2016 had the makings of a disappointing year for M&A.
Still, global spending this year is about $3 trillion, on pace for its third-best year in the last decade, according to data compiled by Bloomberg. Dealmakers say the market has been resilient and may even improve in 2017 as industries such as energy and financial services stabilize.
Below, investment bankers based in the U.S. and Europe share their perspectives on the environment for deals in 2016, what surprised them and the factors that will shape next year.
Gilberto Pozzi, M&A Global Co-Head at Goldman Sachs Group Inc.
We have experienced a year with very different momentum at the beginning compared to the end. What surprised us in 2016 is how volatile M&A activity can be, whilst the deal itself is by definition a long term decision. We see increased levels of deal activity when there is confidence in the market outlook.
We are moderately optimistic given the expected acceleration of global growth supported by stimulus in various countries. Financial conditions remain favorable and investors continue to support the right deals. In addition, the M&A market in the U.S. is looking positive which generally feeds across to Europe at some point.
There is a concern that geopolitical tensions could impact CEO confidence and their willingness to push forward with transformational deals. However, we continue to have very active dialogs with a number of clients about large-scale consolidation options and could see significant moves during the year.
Luca Ferrari, head of EMEA M&A at Bank of America Corp.
The biggest surprise has been not only how important geopolitical events have been in the minds of all market commentators and participants, but how, after some of the most surprising polling outcomes in decades, the equity and credit markets were able to shrug off concerns almost immediately.
The M&A market will be affected by contrasting forces. Capital is available and cheap, equity markets trade at high valuations and CEO confidence is still at high levels by historical standards. Nevertheless, coupled with a most likely rate rise, the shift away from conventional politics and lack of economic growth in EMEA may continue to create uncertainty and limit investment. On balance though we believe 2017 is likely to be at least as good as 2016.
Paulo Pereira, partner at Perella Weinberg Partners
2017 has many ingredients to be a strong M&A year, from a relatively more positive macroeconomic environment in the U.S., coupled with the prospects for corporate tax reform, to the acceleration of long-term trends in a number of important sectors, particularly driven by technological change. Whether or not these will translate into growth in M&A volumes across regions will very much depend on political and related factors, at the domestic level in each country and internationally.
We expect to continue to see significant levels of activity in sectors that have had important M&A volumes in recent years, from consumer products to TMT, industrials or health care for example. In addition, some sectors that have been relatively underweight in M&A in recent years, such as financial institutions or oil & gas, have a new backdrop going into 2017, with rising interest rates and a rising oil price respectively – this will bring new M&A capacity and opportunities.
Pier Luigi Colizzi, head of M&A for EMEA at Barclays Plc
While there is significant availability of cash for M&A transactions, and investors are focusing on growth, it is possible that the M&A market will remain moderately cautious until more clarity is achieved on the implementation of the U.K. referendum decision and the implications of the policies of the new U.S. administration.
The commodity related sectors have been inwardly focused for a long time, and may see some developments in 2017. The financial services sector will continue to evolve, with increased focus on streamlining group structures to enhance returns. Health care and chemicals may continue to see consolidation on a global scale. Finally, the media sector has seen significant activity at the end of 2016 and could see continued developments in the new year.