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Optimism's the word as bankers look for deals after Brexit shock

Thursday, July 7, 2016 - 15:38
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Dealmakers facing global turmoil in financial and currency markets since UK voters decided to leave the European Union are finding reasons to be positive.

[LONDON] Dealmakers facing global turmoil in financial and currency markets since UK voters decided to leave the European Union are finding reasons to be positive.

The year so far has been a relatively gloomy one, with global mergers and acquisitions down 14 per cent from the same period in 2015, when the market was on its way to a record, according to data compiled by Bloomberg. Companies held off on selling shares or making purchases as the uncertainty of the Brexit vote hung over big transactions.

Regulators also stepped in, quashing a number of high- profile mega deals. Pfizer Inc and Allergan Plc in April terminated a US$160 billion merger that would have been the biggest deal in drug industry history, after US regulators proposed rules to cut down on deals that let companies lower tax bills by moving their tax addresses to a lower-cost regime.

The EU blocked CK Hutchison Holdings Ltd's bid for Telefonica SA's O2, an acquisition that would've created the biggest mobile phone carrier in the UK Honeywell International Inc. walked away from a $90 billion offer for United Technologies Corp, with the target company saying a combination was unlikely to clear regulatory hurdles.

Still, with the Brexit vote decided, the financial markets are shaken, but intact. Deals that made sense before the referendum largely still make sense now, and companies are still looking for ways to grow, according to a Bloomberg survey of top dealmakers. Chinese buyers are still on the hunt for foreign acquisitions and central banks are working to keep financial firms fluid.  For more on the Brexit fallout, click here.

Michael Carr, co-head of global M&A, Goldman Sachs Group Inc.

"We continue to expect transaction activity to reflect the consolidation trends that have characterized M&A since the middle of 2013. The vast majority of activity has consisted of consolidation at the sector level as corporates continue to take costs out and drive growth -- that dynamic will continue almost regardless of external sentiment.

"It's early to judge the impact of Brexit, but you could imagine that the US would remain interesting to overseas players given its relatively attractive growth rate and stability.

"Outbound Chinese M&A activity has comprised almost 25 per cent of total global M&A in 2016. While that proportion seems high for the first six months of the year, we expect that the Chinese will continue to acquire around the world. Their motivation is both strategic and long-term, and they would like to continue to move some of the $2 trillion of foreign reserves outside of China." Pier Luigi Colizzi, head of M&A for Europe, the Middle East and Africa at Barclays Plc "The outcome of the referendum has created some uncertainty for foreign acquisitions into the UK. Foreign potential buyers of UK assets are likely to be cautious until the political landscape in the UK is clearer and a clearer path to an orderly relationship with the EU is defined.

BLOOMBERG

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