Despite the political uncertainty in the U.S., according to the IntraLinks Deal Flow Predictor global deal making is predicted to increase 6% in the first half of 2017. This would set a record for annual first half global announced deals.
IntraLinks vice president of M&A Strategy and Product Marketing, Matt Porzio, helped Woo Trader dig a little deeper into the most current DFP data.
WooTrader: Given the global political impact of nationalism, anti-globalization and protectionism, why is record M&A growth expected nearly everywhere in the first half of the year?
Matt Porzio: The North American, “Make America Great Again” view has not filtered through the system yet. Also, keep in mind, deals in North America involve a foreign acquirer less than 10% of the time.
The vast majority of deal flow is still “in country” meaning it involves both a seller and an acquirer from the same nation. That said, if these factors did begin to have an impact, a 10% swing could be significant.
The main reason I don’t think we’ve seen a large wholesale effect of the nationalism, anti-globalism movement is because the fundamentals that drive M&A are still too ripe to be affected by that.
Turning to Latin America, what were the main drivers behind that region’s turnaround?
First I would generally caution about wild swings in M&A activity. Sometimes they are overstated. For example, if you look at the countries that drove LATAM’s YoY increase, one was Argentina, which was non-existent a year ago. When you look at the data that alone is significant. Couple that with Brazil, a country that although it has still still not turned the corner, has shown brighter signs.
Then there’s Mexico. M&A there may have been driven by the uncertainty of our election results and what might happen with NAFTA. This basically involves people saying, “I need to be out in market now.”
Is any sector “bulletproof?” In other words, one that always seems to be M&A active no matter the climate?
I don’t think so. Sectors just like regions see the cyclicality of M&A. However, if you look at the sheer number of deals, I think technology, media and telecom are consistent. In that industry, media assets always have value.
Technology acquisitions happen for a variety of reasons including growth, IP and acquisitional hires. There seems to be a pretty consistent level of M&A activity in that industry and if you look back over 8 quarters there was one YoY of double digit decline but everything else was in a pretty good upswing.
Looking at the pure numbers that we track, that’s pretty consistent. Another thing to consider is the number of startups that will eventually have to exit. There’s a significant portion in that space.
What sectors are expected to drive increased M&A announcements in North America and why?
One is materials, a sector in which commodity prices affect deal making. As commodity prices have started to come back companies have a little more in the tank, so to speak, and we see a little more activity, especially since consolidation is key to cost saving.
Another area, health care, is a little different in the sense it has been pretty weak. When you view it on a QoQ basis, there was significant growth. I think some of that in North America, once the election results were in, involved people scrambling to get deals done.
Also our definition of health care is broader than just providers. It includes pharma and medical appliances to a degree. Those areas are probably where you are seeing more of the consolidation.
Finally, financials have been on the upswing for a while. From mega-deals to midsized deals there seems to be more confidence in the board room with people saying, ‘Now is the time (to consolidate).’
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How would you sum up the (apparent) global optimism when it comes to M&A?
Once the dust settles, M&A is usually rewarded in the market. Action by the Federal Reserve affects a small portion of deals from a financing point. It will affect some but it also plants a seed that it might be time to move now. A half point or more might slow things down. Otherwise, a small hike is generally a motivator.
It’s too soon to tell what the long-term effects of nationalism, protectionism, etc. will be. Currently lack of organic growth opportunities, low inflation and low interest rates still rule. Those forces, which have been powering M&A activity over the past 3 years remain in place today.