As has been discussed previously, M&A activity in North America declined in 2016 as compared to 2015. A recent survey published by Toppan Vite and MergerMarket of 25 top US-based dealmakers regarding North American M&A in 2016 delves further into the reasons for this decline.
Roughly half of the respondents to the survey believed that the M&A market underperformed in 2016 and mainly attributed the decrease in North American M&A activity to the US presidential election, the United Kingdom’s decision to leave the European Union (Brexit), the political turmoil in Russia and Ukraine and depressed oil prices. Survey participants cited uncertainty surrounding potential amendments to tax codes and trade agreements that may result from the new US presidential administration and Brexit as cause for concern, with certain respondents indicating that they purposely steered investments away from the European Union and the United Kingdom in light of the results of the referendum. Weak commodity prices, a contraction in US monetary policy, the cooling Chinese economy, increased regulatory restrictions and tensions in the South China Sea were also identified as factors which may have discourage investors this year. Many respondents believed that although economic anxieties may be alleviated in 2017, concerns regarding global political uncertainties would remain and continue to impact M&A deals. As one survey respondent stated,
The economic conditions will improve but the political challenges will continue to remain the same. It is not only the US political environment that will worsen, but countries such as France, Germany, China and some South American countries will also face significant political uncertainties.
Firms seeking business growth, increased market shares and cost synergies were most likely to participate in deals in 2016. Domestic transactions were clearly favoured as 60% of survey respondents indicated that they focused their M&A investments in North American this year and seven of the top 10 bids, including the AT&T US $105.045 billion bid for Time Warner Inc., were domestic deals.
A few survey participants were encouraged by the volume and value of deals that were announced in 2016 in spite of uncertain, volatile markets and the factors discussed above. October 2016 resulted in US$254.8 billion worth of deals representing the highest monthly US deal value since July 2015. Respondents also pointed to mega-deals such as the announcement of Microsoft’s US$28.1 billion acquisition of LinkedIn and Bayer AG’s US $63.4 billion bid for Monsanto Company as reasons to be optimistic. See our post on the outlook for 2017 M&A for additional discussion on the views of global executives for the upcoming year.
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