Global M&As may hit new high by Sept: facilitator

Singapore

DEAL-MAKING worldwide for the first nine months of this year could hit a record as it clicks higher by 7 per cent from a year ago, galvanised by activity in the healthcare, consumer and retail and real estate sectors, according to the latest forecast by a deals facilitator.

The brightest spot in the deals sphere is the Asia-Pacific where the number of announced mergers and acquisition deals in the nine-month period of this year is expected to crank up by 13 per cent, with the strongest growth coming from India which is seeing a "huge explosion of activity", Australia and South-east Asia led by Singapore.

The predictions are based on M&A facilitator Intralinks' latest deal flow predictor which forecasts the volume of future announcements by tracking early-stage deal activity.

"Based on what we are seeing, we can predict with quite a high degree of confidence that 2017 is going to be a new record year for announced M&As," said Philip Whitchelo, Intralinks vice-president of strategy and product marketing, in an interview with The Business Times.

"After the record for the number of worldwide announced M&A deals in 2016, 2017 looks set to be another year of superlatives," he said in the report.

A trinity of factors or "pillars" are driving deal volumes up and they include economic growth - modest but increasing - low inflation as well as low interest rates that have in recent years spurred debt-fuelled deals.

In the Asia-Pacific, most activity is expected to surround the consumer and retail, financials and healthcare sectors.

While the recent clampdown by the Chinese government on outbound M&A transactions in its war on capital flight could affect deal values, as in lower number of very large transactions, Mr Whitchelo reckons that it will have a "significantly smaller, if any impact" on the number of Chinese outbound deals.

On the other hand, deal flows in India, Asia's "new M&A powerhouse" and the world's fastest-growing large economy - it has already overtaken China in 2015 - have risen faster than in any other large country.

Stimulating the deals forecast is activity levels in the Americas; the number of announced deals in Latin America and North America over the nine months of this year is predicted to rise 7 per cent and 11 per cent respectively from a year ago.

In contrast to last year where Europe had driven a large chunk of the deals, the EMEA (Europe, the Middle East and Africa) region is expected to be flat.

As always though, there is a downside. In this case, the risks that could dampen deal flow, according to Mr Whitchelo, is largely political - rising nationalism, protectionism, increased restrictions on global trade and cross-border economic integration and the potential for a conflict involving the US, Russia or China in one or more of the geopolitical hotspots of Syria, the Ukraine, the Korean peninsula or the South China Sea.

For one, US President Donald Trump's "America First" agenda and its perceived threats on free trade policies could impact deal activity in the Asia-Pacific which very much relies on cross border M&As, economic integration and free trade.

"At the moment, however, we are not seeing this as a dampener. I'm simply flagging it as a potential risk if the rhetoric translates into action. There's a wall of worry on the impact of inward looking policies affecting global trade and by extension, M&A deals," he said.

Brexit fears have also curtailed deal making in the UK which has seen a volatile trend since last June's referendum when the country voted to leave the European Union.

"Many companies are certainly holding back on very large transactions in the UK until they know what is the shape of the final outcome or whether there is going to be a deal at all. There has definitely been a decrease in inbound activity there," said Mr Whitchelo.

Intralinks' data includes the sell-side M&A transactions that are in preparation stage or have reached due diligence stage which are, on average, six months away from being publicly announced. The focus is on deal volume versus value, a better gauge, he said, as at least half of the deals announcements do not disclose their value.

"We have built a model that can very accurately predict future deals to be announced in terms of volumes and the sectors. By the time the data comes to us, between 85-90 per cent of the deals are likely to be closed or announced," said Mr Whitchelo.