Public M&A shows signs of resilience
Although activity has declined from last year’s record levels, evidence from key jurisdictions suggests that public M&A is remaining resilient supported by a number of factors, not least an increase in private capital being deployed in this market.
Confidence in the U.S. – still the powerhouse for public deals – remains high despite the international and domestic political dramas dominating the headlines. Boardrooms are focusing on achieving growth and realising that this can be achieved fastest through acquisitions – often big strategic deals, innovatively financed and increasingly supported by shareholders.
A dip in share prices at the end of 2018 led to a spate of more opportunistic public deals in both the UK and Germany, but in both markets a standout trend is the growing activity by well-resourced financial investors.
In the UK we have seen an increase in take-privates by PE houses, with the UK public market generally seen as undervalued in comparison to other developed markets. However, a predicted wave of take-private deals in Germany this year has not yet materialised thanks to a recovery in share prices during the Spring. But with big targets relatively scarce, investors appear increasingly willing to use their accumulated cash to take on larger and more complex deals. Continuing moves by German conglomerates to hive off non-core businesses are also bolstering public activity.
Meanwhile, a series of significant reforms aimed at internationalising China’s public markets are already boosting foreign investment in A shares with further liberalisation in the pipeline.
Regulatory complexity remains a challenge, particularly due to the proliferation of national security merger controls. In the U.S. CFIUS reviews are now more frequent and much broader in scope, while in Europe new EU legislation applying from next year will mark the first time a supra-national approach is taken to vetting inbound investment. The German government has become more interventionist on this issue while in the UK proposals for government scrutiny in a much wider range of sectors is under consideration.
Dealmakers must prepare carefully for such challenges and pitch their offers at a level that is hard for target boards to ignore. There is unlikely to be an explosion of public deals in the months ahead, but good reason to believe activity will remain robust.
Dealmakers must prepare carefully for challenges and pitch their offers at a level that is hard for target boards to ignore.