The falloff in M&A has been sharpest in the U.S., where the dollar value of announced deals is down by 30% for the period, followed by Asia where deal volume is reduced by 24% and Europe off only 18%. In contrast, the pace of M&A activity picked up by 16% in Latin America and jumped 109% in Africa.
With most of the investment bankers of the world relaxing on the beach for summer holiday we thought it would be a good time to take stock of how the deal marketplace is holding up so far this year.
The mid-year scorecard from Dealogic shows M&A activity globally has fallen by 22% in the first half of 2016 compared to the first half of last year. The falloff in has been sharpest in the U.S., where the dollar value of announced deals is down by 30% for the period, followed by Asia where deal volume is reduced by 24% and Europe off only 18%. In contrast, the pace of M&A activity picked up by 16% in Latin America and jumped 109% in Africa.
A less scientific survey that tracks early stage M&A activity (based on the number of M&A deal rooms that have been opened up) provides a somewhat more optimistic estimate that M&A activity for this year will end up down only 1% for the full year compared to last year.
Looking at M&A activity by sector, technology so far has been the standout performer, leading deal activity worldwide, running almost 20% ahead of the tech deal volume for last year. Analysts have attributed much of this strong deal flow in technology to the continuing shift towards cloud based computing, as a result of which various large tech companies are still scrambling to buy their way into the emerging market. Other sectors that have showed continued strength are chemicals and utilities.
In contrast, according to a recent report from Deloitte, M&A deal flow in the energy sector has fallen to levels not seen since the great recession. Analysts had been predicting an increase of energy sector mergers as a result of pressure on weaker companies in the industry from depressed oil and gas prices. But it seems as if the dealmakers have been unable to overcome disparate views between prospective buyers and sellers as to future direction of the market. Instead of M&A activity, the biggest trend among oil and gas companies (at least in the U.S.) continues to be filing for bankruptcy, with energy sector defaults up more than 15% this year, and energy companies accounting for more than 50% of the $50 billion in defaults in the market so far this year.
Another source of strength in the deal marketplace has come from China. In contrast to the capital flows of a decade ago, when many U.S. and European companies were looking to buy their way into the Chinese market, now the worm has turned and it is Chinese companies that have been looking in increasing numbers to make acquisitions overseas.
According to a report from PricewaterhouseCoopers, Chinese companies accounted for 493 outbound mergers in the first six months of the years, which represents an increase of more than 178% from the same period last year. Outbound deal value increased even more, with a jump of 346% over last year to reach outbound M&A deal value of $134 billion.