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Singapore to see dent in M&A deals before they peak in 2018: Baker & McKenzie

Monday, June 29, 2015 - 14:03
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Singapore could see a fall in the total value of completed merger and acquisition (M&A) deals this year on the back of sluggish world trade volumes and China's economic slowdown, said analysts at Baker McKenzie.

SINGAPORE could see a fall in the total value of completed merger and acquisition (M&A) deals this year on the back of sluggish world trade volumes and China's economic slowdown, said analysts at Baker McKenzie.

According to a new report by the global law firm and Oxford Economics, the total value of completed M&A deals in the city-state will fall from US$25.2 billion in 2014 to about US$21 billion in 2015 and 2016.

But they will peak at US$25.5 billion in 2018 as world trade activity is expected to improve in 2016. This, along with increased government spending on infrastructure, should boost the country's overall GDP (gross domestic product) growth in 2016 and lead to a rise in domestic equity prices and transactional activity. Deal activity will slow from 2019 to 2020 following a pullback in equity prices.

Baker McKenzie's transaction attractiveness indicator ranks Singapore as the second most attractive place after Hong Kong for deal making. Switzerland came in third.

The ranking of 37 economies is based on factors including the country's openness to trade, money supply, GDP per capita, size of stock market, legal structure and regulation.

"We expect the number of completed M&A deals to follow a similar pattern, rising from 307 in 2014 to 321 in 2018, then dropping to 223 in 2020," the analysts said.

The share of inbound cross-border transactions will remain stable at 38 per cent of Singapore's total completed M&A deal value in 2018, compared to 37 per cent in 2014.

Singapore initial public offering (IPO) issuance is projected to fall from US$2.1 billion in 2014 to US$745.5 million in 2015, before peaking at US$3.2 billion in 2018.

Globally, M&A deals are predicted to rise from US$2.7 trillion in 2015 before accelerating to US$3 trillion in 2016 and US$3.4 trillion in 2017. M&A activity relating to emerging markets will grow dramatically, rising by 56 per cent to US$678 billion by 2018, up from US$435 billion in 2014.

Stand-out markets for predicted high transactional growth in next five years include developed economies the Netherlands, UK and Sweden; BRIC nations China/Hong Kong and India; and emerging markets Mexico, Egypt and Vietnam.

"Many US and European companies have accumulated large cash balances available for acquiring new businesses," explains Tim Gee, Baker & McKenzie's global head of M&A. "Financial sponsors also have the potential to boost global transactions, with private equity firms sitting on a record US$1.1 trillion in uninvested capital. Cross-border transactions will play a significant role as companies look to gain market presence in high-growth markets."

The most active sectors over the next five years are forecast to be healthcare, telecommunications and financials for structural reasons, with consumer goods & services, technology and pharmaceuticals also boosted, primarily by cyclical trends.

The report predicts that transaction peaks in 2017 and 2018 will not be as high as those before the global financial crisis, as the global economy is not experiencing the same bubble-like conditions as prior to 2007.

Major risks to the forecast include Grexit, Brexit, a Chinese hard landing and the US hiking interest rates faster than expected.

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