M&A market mauled by Brexit uncertainty

Singapore

UNCERTAINTY wrought in the run-up to Brexit battered the global mergers and acquisitions (M&A) scene in the first half of this year, dragging deal value down by more than a quarter, compared to the first half of last year.

Deal value in the Asia-Pacific, in particular, plummeted 30 per cent.

Concerns and anxiety earlier this year over the United Kingdom's impending referendum on its European Union (EU) membership sent shockwaves through the deal-making community, said intelligence and news service company Mergermarket.

Its data showed that, globally, deals in the first six months of the year amounted to US$1.32 trillion, down 26.8 per cent from the US$1.81 trillion recorded in the first half of last year.

First-half deal value was also down 66.8 per cent from the second half of 2015, when US$3.98 trillion in deals were reported.

Mergermarket noted that in the run-up to the vote, firms postponed deals, cautious of the impact of the vote on exchange rates. They are also wondering what they would actually be buying into, unaware of how future negotiations would affect them. Foreign acquirers are delaying transactions, with the value of inbound deals plummeting more than half (down 60.1 per cent) from Q1 2016 (US$32.8 billion) to Q2 2016 (US$13.1 billion).

"Private-equity firms are holding back from casting any confidence in the long-term UK environment - buyouts of UK companies amounted to only US$4.9 billion, three quarters less (75.4 per cent) than in H1 2015."

Following a record 2015, M&A activity in the UK in the first half of this year totalled 638 deals worth US$58.2 billion - its lowest deal value since 2010.

Brexit angst was felt elsewhere in the world as well.

Europe, as a whole, recorded 3,110 deals worth US$342.8 billion in the first six months of the year - the lowest H1 deal value and count since 2013. Deal valuations were also hit, with the average Ebitda (earnings before interest, taxes, depreciation and amortisation) multiple for acquisitions dropping to 12.3 times, down from 15.0 times in H1 2015.

Still, interest both by German acquirers and in German assets helped to stem the fall in M&A activity in this region. Overall deal value in Europe for the first half of this year fell 19.3 per cent year-on-year - a considerably lower percentage than elsewhere in the world.

Mergermarket noted that German deal makers were investing larger sums in US assets, with German chemical and pharmaceutical giant Bayer's ongoing US$62 billion pursuit of American agrochemical corporation Monsanto being evidence of this.

During H1 2016, there were 22 deals worth US$12.3 billion by German companies acquiring US targets, up 70.8 per cent by value compared to the whole of 2015.

High-quality German assets were also sought after during the first half of the year, particularly by Chinese buyers. Chinese deal makers participated in 16 deals worth US$8.6 billion, up from just 12 deals worth US$393 million for the whole of 2015.

In the Asia-Pacific ex-Japan region, M&A targeting the region dropped back to 2014 levels, following a peak in activity seen in 2015.

Overall deal value in the first half fell 30.7 per cent year-on-year to US$303.2 billion.

It was still, however, the second highest H1 for the region since 2001 on Mergermarket's record. Much activity was driven by the Chinese, who are seeking industrial technologies abroad, particularly in Europe (and the aforementioned Germany).

The Midea Group made a US$4.3 billion acquisition of robotics maker Kuka, and China National Chemical Corporation bought industrial machinery manufacturer KraussMaffei Technologies for US$1 billion.

Chinese deal makers accounted for most (64.6 per cent) of the Asia-Pacific's H1 2016 total outbound deal value, with 78 deals worth US$75.4 billion.

Elsewhere in the world, total M&A deal value across 2,242 transactions in the US fell to US$562.7 billion, down 31.5 per cent from the first half of last year.

The US still accounts for the lion's share (44.9 per cent) of global M&A market; Europe ranks second, accounting for 25.9 per cent; and the Asia-Pacific takes up 22.9 per cent.