Allen & Overy “Global Trends in Private M&A” report shows confident market despite political uncertainty
Dealmakers build scale, reach, technology to tackle globalization
BUDAPEST - Allen & Overy’s latest “Global Trends in Private M&A” report reveals that dealmakers are undeterred by political uncertainty, and forging ahead to meet the challenges of globalization. More and more auctions are taking place, thanks to this market confidence. Deals with a value of over USD5 billion are at their highest level for over a decade, reflecting the increasing boardroom appetite for large, strategic deals, while more than half of private equity-backed acquisitions are bolt-on transactions. The report highlights sustained corporate confidence, as buyers, despite challenging regulatory issues, seek expansion, market share, wider operational and product range, and economies of scale through acquisition.
Companies buoyed by strong performance have been putting their large cash reserves to work during the past year, helped on by ready access to finance. Capital markets, relatively stable for much of the year, also supported this robust deal flow. In such an environment, sellers sought competitive auctions to get the most value from their sales, assisted by deal terms that grew ever more seller-friendly. Protectionism and related regulatory challenges present a definite obstacle to businesses’ impetus to globalize, but as noted, this has done little to deter the deal-makers.
The year 2018 has seen the reassertion of the U.S. as the fastest growing transactions market for global M&A, with deal values soaring by 57% in the first 11 months of the year, and accounting for 44% of all global M&A activity in the same period, according to A&O’s M&A Insights for Q4 2018, with data provided by Refinitiv (formerly the Thomson Reuters Financial and Risk Business). The U.S. proved to be the world’s busiest launch pad for outbound deals and is attracting more inbound investment than any other market, despite a 92% decrease in Chinese investment in the U.S. in the first half of the year due to stricter Chinese and U.S. controls. Western Europe also performed strongly, with a 40% deal value increase compared to a year ago. Within this, Germany is one of the leading markets for private equity investment, with deal values up by over 32% in the first 11 months of 2018.
In CEE, meanwhile, despite a strong rise in deal values in 2018, investors remain uncertain about the outlook. CEE has the second highest percentage of deals conducted by auction of any region worldwide at 59%, second only to the UK’s 63%. However, investors continue to find the region challenging from a regulatory perspective, with 67% of the conditional deals dependent on antitrust approval, and 33% on other regulatory conditions. Poland continues to be an important venue, with Generali’s October acquisition of Union Investment TFI with its c.USD3.8 billion AUM, BNP Paribas’s USD954 million purchase of Raiffeisen Bank International’s Polish business in April, and Banco Santander’s USD345 million acquisition of Deutsche Bank Polska’s retail and private banking businesses in November, boosting activity in the financial sector. The Czech Republic and Slovakia saw more mid-sized deals in 2018 across various sectors, with Sanofi’s USD2.2 billion sale of Prague-based generics drugmaker Zentiva to Advent International in October one of the few larger transactions. Hungary’s buoyant real estate sector has driven competition in loan portfolio sales processes, including the October 2018 sale of Aegon Credit and its mortgage portfolio to a unit of Sweden’s Intrum Justitia and Raiffeisen Bank, respectively. The April 2018 acquisition of Hungarian pet food manufacturer Partner in Pet Food by international private equity firm Cinven, for an estimated value of USD607 million, featured as one of Hungary’s standout deals for 2018.
Commenting on the findings, Zoltan Lengyel, Partner at Allen & Overy’s Budapest office, observed: “Despite issues with global macro sentiment and political risk, robust corporate optimism and ample uninvested capital held by private equity funds are all helping to fuel continuing strong M&A activity. CEE has been the venue for some particularly substantial deals, and we expect the same drivers to maintain momentum throughout the year ahead.”
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