The ‘Urge to Merge’ is Alive and Kicking Globally – With a Trend towards Smaller Deals
In a much-talked-about piece in the New York Times recently, Hernan Cristerna, Co-Head of Global M&A at JP Morgan Chase, diagnosed the global mergers and acquisitions market as alive and very much kicking – in spite of ongoing Brexit anxieties and considerable political uncertainty around the Trump administration.
Cross-border European-US transactions have already increased by over 80% this year, with some truly blockbuster deals counting among them such as Johnson & Johnson’s acquisition of Actelion Pharmaceuticals. Globally, mergers had already hit record levels in 2015 and 2016.
Factors influencing the ongoing good health of M&A worldwide have included a marked absence of organic growth per se, combined with easy access to cheap money, both of which are really helping drive the market.
However, we’ve also seen the rise of interventionist policy among governments across Europe, including here in the UK which traditionally has been one of the most open markets, The UK has seen, in common with many other European states, a marked increase in political talk of intervening to help protect ‘critical sectors’.
In the US, rigid protectionism has long been firmly ensconced; the all-powerful Committee of Foreign Investment is, after all, famously able to veto any deal that might be considered not in the nation’s interests. The European Union, tellingly, is now considering whether to bring in similar legislation to monitor cross-border deals in Europe. On the ground, this would mean the M&A equivalent of a lengthy ‘pre-nup’ period, where buyers will take longer to get their hands-on companies.
Off-setting the protectionist trend in Europe, though, China and its huge raft of state-owned companies are looking more flexible than ever in its transition from the ‘world manufactory’ to the ‘ultimate consumer’, with an obvious ongoing hunger for deal-making. Greater overseas investment in Chinese assets is surely on the cards.
Cristerna’s principal prediction is that because of the growing tendency towards state protectionism in Europe, chief executives will shy away from drawn-out juggernaut mega-deals in favour of smaller and much less fraught transactions.
Could it be that this year’s M&A volumes match those of 2016, but with much more emphasis on smaller deals?