After the travails of 2016 (Brexit, Exchange rate depreciation, Trump, etc.), most deal makers were hoping for a slightly less interesting year.
Whilst uncertainty can create opportunities for entrepreneurs and risk orientated equity houses, there is usually a limit on the level of risks that can be priced or structured into a deal.
It is unsurprising that M&A volumes and values varied dramatically across the globe after a period of 12 months that contained a snap UK election, building uncertainty about Brexit, protectionism rising in the US and Europe, restrictions being introduced into Chinese outbound deals balanced against the One Belt and One Road (“OBOR”) project increasing Chinese external contact and numerous other positives and negatives.
Initial figures for overall M&A activity from Experian/Thompson Reuters show deal volumes increasing to their highest level since records began, but total values decreased slightly again to the lowest levels since 2014. This is a combination of fewer mega deals but much higher volumes in the US and territories such as Australia.
Mega deals did start to pick up at the end of 2017, mainly driven in response to the disruption in various industries driven by technology and by the expansion of giants such as Amazon, Google and Facebook into new markets.
For instance 2017 ended with Rupert Murdoch agreeing to sell much of his 21st Century Fox Empire to Disney in a $66bn deal responding to further encroachment by Facebook and Netflix into sports rights, media and film production.
Chinese outbound deal values and volumes fell 35% and 10% respectively in 2017, reflecting fewer larger deals and also restrictions imposed by the Chinese government on certain types of external acquisitions in property, sports and other areas seen as more risky. However, the OBOR project is punishing investment into both infrastructure projects across Asia, Africa and Europe and the acquisition of brands and technology continues apace (such as the Skyscanner’s £1.4bn sale to Chinese travel giant Ctrip).
PKF Francis Clark led a trade mission with other PKF firms around the world to China in 2017, meeting more than 100 Chinese firms looking to expand.
In the UK, total deal volumes and values seem to have fallen slightly (although this is based on draft figures that tend to rise as deal completions are submitted). However this combines much greater activity within the UK (domestic deals rose 13% in volume and 99% in value), being more than offset by UK deals involving a non UK company falling both in value and volume.
There were a few large domestic UK deals including Ladbrokes Coral $3.4bn sale and a couple of property/retail deals that explains the large rise in UK domestic deal values. However, the 13% forecast increase in domestic deal volumes has been driven by smaller deals.
Data from the private company pricing website PERDa also indicates that prices for SMEs also increased in 2017 to levels not seen since 2008. This reflects some of the deals we have been involved in over the last 12 months where selling SME shareholders have received a significant volume of good offers from a number of different buyers and we expect this to continue into 2018.
We also have seen a different experience to the overall volumes in that we are seeing a much higher level of interaction with foreign buyers and vendors. It seems our UK wide client base is trying to defy the global increase of protectionism – Trump’s America first and EU putting up barriers for foreign (mainly Asian) acquisition of “strategic” European businesses.
Overall, acquirers and vendors should be reviewing their timetables for doing a deal. The global economic, commercial and political landscape is unlikely to be less turbulent over the next 12 months and there are many domestic and foreign buyers looking for financial and strategic acquisitions. We will also be running various events focused around international engagement over the next 12 months and more details can be obtained from firstname.lastname@example.org