BDO experts foresee fragile global stability paving the way for an M&A wave in 2018
November 14 2017
BDO has today published the Q4 edition of its global mid-market M&A review, Horizons. Looking back on Q2 2017, the report shows that political uncertainty has suppressed deal volume and value almost everywhere, except in China. Nevertheless, the steep downtrend of Q1 2017 having been broken and with record amounts of dry powder in private equity offers, firms around the world will aggressively seek quality assets in 2018.
Regional performance highlights in 2017
- In Europe, Q3 2017 was a challenging quarter as both volumes and deal value fell: however, the United Kingdom & Ireland were one of the very few to record a strong performance in terms of both deal volume and value, despite the ongoing uncertainty around Brexit. The traditionally strong DACH region reported only 39 M&A deals in Q3 2017, a weak performance compared to previous quarters. European Commission rules on outside EU investment are expected to hamper M&A activity
- In China, both M&A deal value and numbers are on the rise: the country’s outbound investment has become more significant in size, more sophisticated in approach and more diversified in sectors during the year
- In India, Mohdi’s ‘Make in India’ programme is helping the country to become a global hub for hi-tech manufacturing, challenging Chinese dominance. Overall deal activity in Q1 2017 was driven solely by the Vodafone-Idea megamerger, which contributed more than 80% of total value. Q3 2017 was disappointing in comparison, with only six transactions valued at and above US$100 million. Change is expected as deal-makers get to grips with GST regulations
- In north America, valuations are at unprecedented levels, causing buyers to baulk and stagnate activity. This last quarter has recorded the slowest quarterly activity since Q2 2013
- In Latin America, mid-market M&A saw 56 deals in Q3 2017, representing falls of 22.2% in numbers and 49.7% in value, compared to Q2. Argentina’s improved political conditions and return to financial markets have been rewarded with renewed investor confidence, while Brazil heads the top Q3 deals for Q3 2017 with three deals worth US$934m, followed by Chile with two deals worth US$643m (25.9%) and Argentina with two deals worth US$182m
Industry focus in 2017
- After dominating natural resources, Chinese M&A investment is turning to industrial technology, preferring robotics and automation targets: the BDO M&A Heat Chart for China shows a total of 1,020 deals, of which 30% are in Industrials & Chemicals and 16% are related to TMT - Technology Media Telecommunications
- For Europe, it was Industrials & Chemicals, TMT and Pharma, Medical & Biotech which were the most active sectors in Q3 2017. In contrast, in the Consumer sector no deals took place in Q3
- The Manufacturing sector is the biggest surprise, with transaction numbers in Q3 2017 at their lowest since 2013. This is a 25% YTD reduction in deal value, and in terms of transaction numbers, Q3 2017 was the lowest quarter since Q3 2013
- 9% of future M&A deals are predicted to occur in mining, energy and utilities. All-time-high commodity prices are helping mining to raise equity, and this is expected to trigger a flood of deals in Africa, South East Asia and Latin America.
- Despite the mixed M&A fortunes this year, the outlook looks brighter for 2018. Through the commentary of BDO’s mid-market M&A specialists, this edition of Horizons predicts an avalanche of M&A deals in 2018. Strong economic fundamentals, more political stability than earlier in the year and an ongoing investor-friendly environment in the capital markets are all positive indicators for a global increase in M&A activity.
Published every quarter, Horizons articles are authored by more than 20 BDO M&A specialists, providing invaluable insights into where investment is flowing and showcasing global deal activity. With topics ranging across regions and industry sectors, Horizons provides a satellite view, integrating impacts from politics to the global economy, and pulling together trends and predictions for 2018.