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Global dealmakers powering ahead with M&A deals despite geopolitical storms: poll

AMID geopolitical tensions and economic uncertainties, dealmakers are optimistic about their ability to get deals done, with many even anticipating a rise in mergers and acquisitions (M&A) in the year ahead. This is according to research conducted by Baker Tilly International and M&A intelligence provider Mergermarket, which was released on Thursday. 

In a survey of 150 global dealmakers, 54 per cent said M&A activity will increase through the rest of 2019 and beyond. A further 71 per cent said they will ramp up cross-border investments, as they seek out new markets for their operations in response the US-China trade war, and growing protectionism worldwide.

Michael Sonego, Baker Tilly global corporate finance lead, said: "We are seeing strong interest among buyers despite the geopolitical turbulence in almost every corner of the globe, and respondents believe this will continue into the year ahead.

"We particularly see strong forecasts for an increase in cross-border investments which are more complex, but also potentially offer safeguards for businesses at a time of disruption."

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When completing cross-border deals, dealmakers face both big-picture concerns and technical challenges as they pursue acquisitions.

Among their top concerns, respondents point to regulatory hurdles (81 per cent) as the greatest challenge, followed by macroeconomic and geopolitical uncertainties (71 per cent). 

"There are clearly challenges being faced due to the lack of certainty around the globe, but rather than inhibiting activity, it has in many ways become a driver of activity," Mr Sonego noted. 

"We have now had uncertainty from Brexit for three years, we have had challenges between the US and China for two years, and there's a growing sense the disruption is the new normal. 

"For some buyers that might mean wanting to wait on the sidelines, but for many others it has prompted deal activity as people try to manoeuvre around the challenges."

He added that while it might be difficult to see these risks receding in the near future, these challenges may in turn spur M&A, prompting businesses to rethink their portfolios, and respond to change by pursuing new deals.

By geography, respondents highlight South-east Asia and North America as key growth markets, where they will focus their investments in the year ahead.

While the developing economies of Asia with their expanding middle-class populations and rapid rates of growth offer exciting potential, North America, which is notably the largest economy in the world, has posted strong growth over the past two years, and is stable and familiar, the report highlighted. 

Mr Sonego also noted that while both markets were appealing to buyers, their drivers of activity were different.

"North America is a large economy with a proven, captive population who demand quality goods and services. If you can break into that market, you have a strong population of consumers who are known to buy, and M&A is a well-understood entry option to the market.

"For South-east Asia, the opportunity lies in the emergence of middle-class consumers and wealth — new markets opening up with people who might not have previously been able to access your goods, but who have growing and sustained demand," he explained. 

In particular, the survey showed that mid-market dealmaking (defined as those valued between US$15 million and US$500 million) hold great potential – and 67 per cent of respondents agree that this segment will see the most activity in the upcoming year. 

At a deal process level, post-merger integration (77 per cent of respondents) and deal sourcing (64 per cent) also pose significant challenges, the research showed. 

Specifically, the difficulty of performing thorough due diligence may cause issues, with dealmakers now required to conduct more exacting scrutiny of every aspect of potential acquisitions in order to avoid bear traps. Close to two-thirds (68 per cent) of respondents say this is a primary concern as they pursue deals.

"The crucial message to buyers and dealmakers is the importance of due diligence, particularly when you need to consider factors beyond the financial, and look at the market, the political context and the local context," Mr Sonego said. 

"This is where good advice becomes critical, and we are going to see a larger number of deals falling over in situations where that advice is not being sought or heeded," he added.