In the globalisation period, the cross-border mergers and acquisitions have massively increased in the last two decades. Policies of free trade and financial liberalisation have been essential contributors to the global expansion of markets.(Civilserviceindia.com, 2017)
Previously, we highlighted and discussed a series of political events and global currents that have been influencing global M&A trends. As observed by head of German conglomerate Bayer, Werner Baumann, cross-border transactions and deal-making remain a significant feature of global markets despite the volatility and uncertainty in the economic and political world scenarios. (Financial Times)
In the present world scenario, there have been major highlights that make this sector an attractive feature of global markets. Some of them are:
- The need for massive consolidation.
- An opportunity to expand and exploit potential growth in new scale markets.
- Low rates of debt financing stimulate purchase of corporate debt.
The year 2016 witnessed $900bn-worth of cross-border deals , accounting for about 40 percent of the $2.37tn of the overall M&A transactions.
The shortage of growth prospects in developed nations make them a bright marketplace, especially for the developing nations such as China and Japan. Hence, growth opportunities in the US will attract a lot of investment in the US companies by Asian as well as European companies. As highlighted in my previous post, the longer term trends observed in the UK will also drive cross-border M&A.
On the contrary, a controversy has been observed in China conflicting with the strong deal volume that had been maintained throughout 2016. Due to increased scrutiny of outbound M&A by the regulators in China, acquisitions done with purposes of prestige or political gain have been discouraged and hence, in the last quarters of 2016 saw a decline in acquisitions. (Financial Times, 2017)
Cross-border transactions include numerous uncertain variables, in terms of carrying legal proceedings in the host country as well as following requirements and activities that are bound to become complex in a foreign jurisdiction. (Cross – Border M&A Trends in 2016, 2017). Hence, compliance guidelines play a discouraging role for companies to make cross-border deals and encourage domestic deals instead. In a panel discussion on challenges and threats caused by Brexit for the mergers and acquisitions market, CEO of Domtar Corp, John Williams said that a merger or an acquisition is simply an international expansion of a business irrespective of the fact whether it is a global or a domestic deal. The uncertainty involved in the legal compliance could be resolved by having a flexible and well-versed process agent as a trusted point of contact who maintains the swiftness that is a requisite for M&A deal-making. (Wcsr.com, 2017)
With one of the most volatile times, cross-border deal-making has witnessed decelerating growth in 2016, but factors such as cheap finance, strong corporate balance sheets and decent growth across markets and key sectors will definitely improve the run-rate of M&A cross-border deal making in 2017 with an upward graph in 2018. (Baker & Mckenzie). I believe a soft-ish Brexit and friendly trade policies in the post-Trump world will play a major role in expansion of the global M&A market.
Hence, I feel the speculative trends in the present world will definitely have an impact on the M&A cross-border deal making and the global market, especially in the wake of radical changes in some of the strongest economies in the global M&A market.