Global political uncertainty delays M&A deals, reports BDO Horizons

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When the statistics from Q2 2018 are contrasted with those of Q2 2017, the decrease is even more significant, showing 353 less transactions (-16.5%) and a US$ 22bn decrease in value
(-12.3%). Only when looking back a full five years do we find lower figures: specifically to Q3 2013, which saw 1,658 transactions completed with a value of US$ 134.5bn.

The current cautious behaviour of dealmakers can be explained by concerns about trade wars between the US, the EU and China, which are further adding to existing nervousness about the European immigration crisis and populism, as well as totalitarian tendencies across Europe, notably in Turkey and Poland. The upcoming elections in South America, the Brexit referendum and China’s tightening capital controls are boosting this anxiety too.

Key takeaways

• The relative drop in deal value overall was lower than that of deal volume, pointing towards an ongoing trend for bigger transactions
   
• Despite Brexit troubles, the UK & Ireland registered a deal volume rise of 16%
   
• The industries with the weakest growth are consumer business (-12.7%) and TMT (technology, media and telecommunications) at -12.5%
   
• If we have a look at the number of deals, apart from the Nordic (+2%), UK & Ireland (+16%), Other Asia (+22%) and Greater China (+10%), all other regions recorded worse numbers in Q2 2018 than in the previous quarter. This was especially the case in North America, which recorded a decline of 129 transactions to 432 transactions (-23%) in comparison to Q1 2018 and a decline of 189 transactions (-30%) when compared to the same period a year ago (Q2 2017)
   
• Global private equity activity remained high in Q1 2018, despite the general downtrend, although only 208 transactions (were registered, with a value of US$ 24.4bn): 67 / -24.4% transactions less than in Q1, 126 transactions less (-37.7%) than in the same period in 2017
   
• Energy, Mining & Utilities fell by 23.4% from 285 transactions in Q2 2017 to 187 transactions in Q2 2018

Global real estate activity declines after explosive Q4 2017

• Asia leads M&A real estate global deal activity, accounting for 76% of global deals. The largest driver here -  the Chinese economy – is slowing down due to rising debt and trade tensions, but in the next largest jurisdiction, South East Asia, it is increasing
   

• Europe posted a 46% drop in real estate deals in the first half of 2018, compared to the same period in 2017

Renewables take off as technology matures

• Global investment in renewables booked its fourth strongest year in terms of spend since 2009: overall investment is up, at US$ 300bn. M&A increase along the whole energy supply chain, with both Shell and BP announcing acquisitions to establish their dominance of the charging infrastructure in Europe
   

• Contrasting with a European slowdown, North American renewables led the way with a 27% increase in investment year-on-year, rising to US$ 80bn. Onshore wind is leading with investments up to US$ 141bn, representing a US$ 24bn increase on the previous year. Solar investment decreased slightly, to US$ 116bn
   
• Energy storage M&A transactions emerged from the shadows with almost US$ 3bn spent on deals in 2017. Some significant strategic alliances have been announced, including a JV between AES and Siemens

Retail investors eye opportunities as sector faces testing times

• There is a perfect storm for bricks and mortar retailers, which is intensifying year-on-year. The way we are shopping is changing fundamentally. This is a global trend and the adjustment has not yet finished
   
• If retailers are not innovating or diversifying their offerings then there are still big deals to be done to take advantage of synergies and regain some competitive advantage through cost savings

Published quarterly, BDO Horizons articles are authored by more than 20 BDO M&A specialists, showcasing global deal activity and providing invaluable insights into where investment is flowing. With topics ranging across regions and industry sectors, Horizons provides a satellite view, integrating impacts to the global economy and scoping out trends.