Down but not out
Deal values and volumes remain significantly down on the record levels achieved in 2015, but roughly on a level with 2014. That is a pretty remarkable outcome given the huge political uncertainty caused by Donald Trump’s election victory and Brexit.
Q4 key themes include:
Values and volumes down but not out
Transaction values and volumes continue to be significantly down on 2015, when deals reached record levels. But they remain roughly on a par with 2014 and deal values in the year to date have exceeded USD2.5 trillion for the third year running.
October spike for the U.S.
Despite the lower levels of transactions in the U.S., there is still evidence of real strength in the market and October witnessed an unusual spike in U.S deals. They rose to their highest monthly level on record, with four of the ten biggest deals this year done in that month. We think this reflects a continuing appetite amongst CEOs to take on truly transformative, strategic deals that will allow them to achieve revenue and profit growth in a low-growth environment. So far, the election of Donald Trump does not appear to have changed that view although any interest rate rises might.
Complexity and regulation force record withdrawals
The value of withdrawn deals has risen to an eight-year high of USD771bn in 2016, a reflection of increased activity by antitrust regulators but also the daunting complexity of some of the huge strategic deals being undertaken. The sectors most affected are high tech, financial services and industrials.
Politics takes its toll
Transaction markets grew progressively quieter as the year unfolded, with some – notably Europe and Asia Pacific – considerably less active in Q4. Above all, this reflects investor nerves about the deepening political and economic uncertainty caused by a number of factors, including the UK’s vote to leave the EU and the U.S. election result. Dealmakers seem determined to take time to assess the new political landscape.
Mega deals decline as mid-sized transactions dominate
The overall volume of deals worth more than USD10 billion is 35% lower than in 2015, yet megadeals continue to be announced, as seen in Q4 with the proposed AT&T/Time Warner merger. But in some regions, notably the U.S. and Asia, we’ve seen good growth in mid-market deals.
Energy and infrastructure showed some rare signs of resilience during 2016, although this is partly due to a small number of very large deals and against a backdrop of continuing low oil prices, which are likely to persist. Cost cutting, capacity reduction and more stable prices for key commodities could begin to spark activity in the mining sector after several very depressed years. Life sciences and TMT transactions, both significant drivers of the 2015 boom, are sharply down, although we expect activity to pick up in both sectors in the year ahead.