2015 was a very busy year for global M&A activity. Just the first half of the year saw in excess of $1.8 trillion and that was just the reported activity. The value of the unreported deals are most likely staggering because of the number of them, even if they are smaller in transaction value.
At AA Chase, we are predicting that 2016 has the potential to dwarf this figure.
The most common reasons cited for M&A activity in 2015 included the appetite for competitive advantage, a focus on enhancing innovation and the retention of market share. We are now witnessing M&A activity with a long-term goal to build sustainable business strategies for the next decade.
In certain sectors, we are seeing companies positioning themselves to take advantage of current market conditions by merging and combining strengthens instead of the outright acquisition. Recruitment and financial services benefiting in particular from this strategy.
There has always been an appetite in the staffing sector to increase its contractor/temporary numbers through acquisition but this is now being strengthen by the addition of more profitable introduction fees to drive high valuing in the new business.
Needless to say, with the blood bath of the financial markets in recent months, creative solutions for brokers and advisory businesses are all pointing towards ‘rolling up’ into larger firms to mitigate the risks of failure due to reduced fee income.
Global market facts:
The USA has taken the lead in M&A activity thanks to a strong dollar, lower borrowing costs and healthy earnings. China has also been active among growth markets with deals in G7 countries amounting to $497 billion, an increase of almost 70% from last year.
According to information complied by Ernst and Young Global, almost 60% of companies are looking to engage in acquisitions within the next 12 months. Furthermore, over 80% of executives anticipate that M&A activity will increase in 2016.
The strongest sectors for M&A interest and activity are oil and gas (69%), mining and metals (67%), consumer products (67%), diversified industrial products (66%) and power and utilities (65%). Particular investment focus is anticipated in the government and public sectors, retail, wholesale and manufacturing.
Geographical boundaries for M&A are also blurring, with cross-border deals said to be attractive to 70% of EY’s respondents. Although 29% plan to concentrate on domestic markets, 26% have indicated that they intend to invest in the Eurozone. Current fluctuations within Europe, combined with political stability and the abundance of high-quality assets, make it an attractive area for activity.
Overall, the USA, the UK, Germany, China and India are the top five favoured destinations for investment, while companies based in Brazil, the US, France, Germany, Australia and the UK are preparing to invest most heavily. Forty percent of EY’s respondents indicated an intention to allocate at least 10% of their acquisition budgets to investment in emerging markets.
If you are considering a merger or acquisition and would like professional and discrete advice call our Head of M&A at AA Chase, Andrew Thomas on 07973 832216.
