Growing Protectionist Policies are Challenging Global M&A Activity: Solomon Partners
Despite recent declines in transaction volume, there is cause for optimism
NEW YORK – August 12, 2019 – Global economic conditions for deal-making remain advantageous, even with the headwinds created by protectionism, tariffs and the threat of trade wars, notes Solomon Partners, a leading financial advisory firm, in its latest Cross-Border Bulletin.
Cross-border M&A lagged during the first half of 2019, as evidenced by a 40 percent decline in the dollar value of cross-border M&A compared to the same period a year ago (from $527 billion to $319 billion). Likewise, the number of transactions declined 19 percent during the first half of the year compared to the first six months of 2018 (from 3,569 to 2,908).
“While the data paints a bearish picture of the current state of cross-border M&A, there are reasons for optimism,” said Jeff Jacobs, Managing Director and Head of Cross-Border M&A at Solomon Partners. “Borrowing costs continue to remain historically low, providing buyers with ongoing access to cheap acquisition financing. Additionally, technological disruption has continued to push corporations to pursue international acquisitions to capture growth. Even with the barriers created by governments to protect domestic industries, corporations will continue to pursue cross-border M&A to feed their need for global expansion.”
Chinese Outbound M&A Facing Challenging Conditions
In Q2 2019, the number of Chinese outbound M&A deals declined 51 percent, representing the tenth consecutive quarterly decline. The slowing Chinese economy, increasing trade tensions with the U.S. and the rise of protectionist policies put in place by the U.S. and several European countries, are challenges to reversing this trend in the near term.
“Chinese outbound M&A is facing regulatory headwinds and near-term volatility,” said Raghu Narain, Managing Director and Head of Investment Banking (APAC) at Natixis. “CFIUS and the ongoing China-U.S. trade war have negatively impacted M&A volumes.”
Despite these challenges, Solomon Partners states in the Cross-Border Bulletin that Chinese companies are continuing to find opportunities to pursue cross-border M&A, especially in Asia and Africa. In the second half of 2018 and first half of 2019, Chinese outbound deals to non-U.S./E.U. nations grew to 48 and 44 percent respectively, the highest proportion since 2015.
Added Mr. Narain, “Select European countries and other parts of Asia are net beneficiaries of China’s shifting appetite for acquisitions. Due to certain secular themes underpinning the Chinese outbound phenomenon, in the mid-to-long run, we expect demand to remain robust. Thus, Chinese management teams are supportive of deals and will continue to seek to acquire U.S. and European companies despite the current obstacles in place.”
The latest issue of the Cross-Border Bulletin covers a range of topics related to global M&A including an analysis of trends related to terminated deals, detailed assessments of transaction activity in France and Italy, and a look at M&A in the cybersecurity sector. Click here to read the Bulletin.
All data points cited in this press release were sourced from Dealogic (as of June 27, 2019 for announced transactions).
About Solomon Partners
Founded 30 years ago, Solomon Partners is a leading financial advisory firm with a legacy as one of the first independent investment banks. Our difference is unmatched industry knowledge in the sectors we cover, creating superior value with unrivaled wisdom for our clients. We advise clients on mergers, acquisitions, divestitures, restructurings, recapitalizations, capital markets solutions and activism defense across a range of industries. Solomon Partners is an independently operated affiliate of Natixis, part of Groupe BPCE, a top 10 European and a top 20 global bank.