Open for Business: Outlook for European M&A Remains Positive Despite Geopolitical Headwinds
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ALWAYS AHEAD Open for Business: Outlook for European M&A Remains Positive Despite Geopolitical Headwinds
Geopolitical uncertainty and escalating trade tensions have
Despite Brexit, the UK is still the
combined to add additional layers of complexity and risk to no.1 destination for US-EU
the dealmaking process in recent years. Through this inbound M&A, representing
tumultuous period, however, cross-border M&A deal flow almost 40 percent of EU deals
each year.
has remained surprisingly resilient. Dealmakers with a
long-term outlook and a willingness to look beyond the China-EU inbound M&A has fallen
headlines have found ways to navigate these issues. by 50 percent since 2016, but is
expected to recover.
In this report, our M&A partners, trade lawyers and senior
dealmakers at global companies share their thoughts on Tech, health care and financial
services deals make up over
how Brexit, trade disputes and the upcoming US election 50 percent of the global M&A
are reshaping the deal landscape. We also offer our M&A market by value.
predictions for 2020/2021 and explain how thoughtful
preparation means deals will keep getting done.
Fig. 1: Inbound M&A Deals from US Buyers (Top 5 EU Countries by Number)
500
400
300
200
100
0
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
United Kingdom Germany France Spain Italy
Fig. 2: Inbound European M&A Deal Closures from US and China (by Number and Value)
Number Value ($m)
1400 250k
1 2 5 6 3 9 11 16 39 6 9
1200
200k
1000
150k
800
600 100k
400
50k
200
0 0
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
US-EU M&A Deals by Number China-EU M&A Deals by Number US-EU M&A Deals by Value China-EU M&A Deals by Value
Fig. 1 and 2 Source: S&P Global Market Intelligence (and its affiliates, as applicable), 2020.UK Open for Business: Decisive
Election Points to Active M&A in 2020
A decisive election outcome has created new political stability with a business-friendly
government. M&A activity is likely to increase as a result.
A wave of pent-up deal activity is Deals like the potential £2 billion Historically the UK has accounted
expected to come to market in 2020 sale of Electricity North West for 30-40 percent of all US inbound
following the decisive result of the broke down as the business was at M&A into Europe each year, with
2019 general election. risk of nationalisation if Labour won. Germany and France distant
Deal activity in the utility and runners-up. Perhaps surprisingly, the
The emergence of a strong, infrastructure sectors and others, UK’s clear lead for US inbound M&A
business-friendly government has such as technology, media and was not dented by the recent political
provided a clearer economic and telecommunications, and health care, uncertainty.
political backdrop for investment should rebound with state ownership
decisions after three years of off the table.
political instability.
Despite all the noise about
Financial services could also see
M&A increase, with companies better Brexit, the thing that kept most
There is an M&A backlog, positioned to organise their British deal makers up at night was the
and European operations. “Financial prospect of a Corbyn government.”
as some deals went on hold before
services companies in Europe and
the election. This bodes well for the UK took steps to manage the risk —European head of global PE house
activity in 2020 as buyers and of a no-deal Brexit, but with the
sellers return to the market.” uncertainty around the timing and
terms of the UK exit, it was difficult to Looking ahead, evidence suggests
—Gavin Weir make big, long-term decisions,” says that the UK will continue to outpace
Akin Gump M&A partner, London a senior executive at a global Europe given the UK’s dominance in
FTSE-listed financial institution. “My European financial markets. Even
expectation is that financial services with a protracted EU-UK trade
Post-Brexit clarity negotiation, investors will take a
companies in the UK and Europe
With an 80-seat majority, Prime longer term view given the UK’s
will buy and sell assets to secure
Minister Boris Johnson has the renewed political stability.
business continuity on both sides of
political clout to negotiate a new free
the Channel.”
trade agreement with the EU in one With the emergence of the “strong
shape or another, or agree an and stable” government of which
extension to the transition period if Theresa May once dreamed, it seems
necessary. Dealmakers are relieved The sterling/dollar that the UK’s M&A market is open for
that the immediate prospect of a exchange rate has held below business and poised for more deals in
no-deal Brexit or prolonged delay has the long-term average, making 2020.
receded. Perhaps surprisingly, UK
the UK a very attractive
M&A deal activity has remained
relatively stable since 2016, although market for M&A.”
We’re seeing a lot more
there was a noticeable dip towards
the end of 2019. —Senior principal of a global shareholder activism. Activists
PE house will increasingly influence,
Deals that were abandoned or
and in many cases drive, UK and
delayed are now far more likely to go
ahead. Private equity firms are more Outlook European M&A deals.”
confident too, as a clearer post-Brexit Political stability will also sustain
inbound investment into the UK, —Vance Chapman
roadmap puts new deals back on the
particularly from the US. US-backed Akin Gump M&A partner, London
radar for sponsors.
M&A in the UK remained strong after
The election result also removes the the 2016 referendum, as US
Akin Gump outlook:
uncertainty of a far less business- dealmakers arbitraged softer sterling
friendly regime under a Jeremy to buy UK assets at lower dollar Very positive
Corbyn government, including an valuations.
extensive nationalisation programme.How Geopolitics is Reshaping
Global M&A
Global trade tensions and political turbulence contributed to a decline in deal activity in
2019, but even though M&A now involves additional layers of geopolitical and regulatory
complexity, deals are getting done.
International trade conflicts and political However, dealmakers who have taken Outlook
uncertainty have impacted global time to find workable solutions have Signs of trade conflicts de-escalating
M&A, which saw a double-digit dip continued to close large cross-border also offer comfort. The new United
in 2019. transactions regardless. US private States–Mexico–Canada Agreement
equity bids for UK defence contractor (USMCA) trade deal is expected to
Analysis of trade tensions, political Cobham and satellite company come into play this year, and
risk and tougher foreign investment Inmarsat, for example, were cleared opportunities to reset relations with
regimes now rivals competition law by regulators following initial ministerial China and broker EU-UK and US-UK
considerations in strategic importance. intervention. trade deals are possibilities. And at
some stage China will emerge from
Indeed, despite trade stand-offs and
its recent slump and refocus on
The sell-side has to do tougher rules governing foreign-
outbound M&A.
backed M&A, cross-border deal
a lot more homework when
activity has been relatively resilient in
preparing an asset including the last few years. Transatlantic deal
anticipating potential regulatory activity is more than double 2009 The turn of the year
hurdles and ideally pre-empting levels; and while Chinese investment brought substantial progress, with
into the US and Europe has slid
any buy-side concerns so as from 2016 highs, this is arguably as a US-China trade deal and the
to attract the widest pool of much to do with Chinese domestic USMCA. 2020 will remain exciting,
potential buyers. Deals may take political and economic conditions as
it is with wider geopolitical tensions.
with a US pivot to the EU, UK and
longer to get done, but they
China will always be on the lookout for WTO.”
will get done.” investments that fit with its very
long-term strategic interests, including —Clete Willems
—Davina Garrod Akin Gump international trade partner,
the Belt and Road initiative.
Akin Gump competition partner, London Washington, D.C.
Navigating the increasing complexities Asia is a key strategic Protectionist leanings of governments
of trade and merger control regimes market for our business. We will across Europe and the US still
has become increasingly important to present headwinds for dealmakers in
continue to look at deals that
M&A deal processes, especially as a the short to medium term.
result of complex sanctions regimes support this strategy. You have to
imposed on Russia, Iran and Iraq. factor in more complex dynamics, However, with good preparation
but these are not deal breakers.” and advice, these headwinds are
navigable.
Dealmakers are used —FTSE-100 executive
to the new reality and will speak
to trade lawyers much earlier. An executive at a listed industrial
distributor adds: “Our business relies Akin Gump outlook:
There is recognition that the
process is more complex, but on complex global supply chains. Positive
We had to look at the impact of tariffs
if you address issues early, deals on margins and security of supply.
will close.” But there are long-term objectives
that direct our M&A strategy, like
—Sebastian Rice digitalisation. We will work around the
Akin Gump M&A partner, London complexities when necessary.”Transatlantic Dealmakers Remain Upbeat
as US Faces Presidential Election Choice
President Trump’s trade strategy hasn’t always sat well with dealmakers, but M&A activity
has increased during his time in office. With Democrat presidential candidates offering an
alternative approach, the November poll will influence M&A through 2020.
Despite the market uncertainty caused has also outlined proposals to prioritise
by his administration’s aggressive worker severance pay over investment
The US M&A market has
global trade strategy, US and capital in the event of bankruptcy; tax
transatlantic M&A activity has thrived any fees that funds take from portfolio been very strong for the last
under Donald Trump’s presidency. companies at 100 percent; and make several years. In spite of global
managers personally liable for the trade and political volatility, the
US domestic deal activity is up and debts of companies they back. This
transatlantic deal flow has sustained strong US economy and bullish
could have a chilling effect on buyouts.
high levels since Trump’s 2016 election. equity markets have been
particularly helpful to strategic
Fig. 3: US Deals by Industry Sector Private equity firms are buyers. Private equity has been
and Deal Value sitting on record amounts of dry very active, doing more, albeit
powder and the US M&A market is somewhat smaller deals.”
competitive and fully priced. Over
—Jeff Kochian
the next year the boost to US M&A Akin Gump M&A partner, New York
2015 2019
from the Trump administration’s
tax cuts will level off too. These
“The election cycle does add a layer
factors will see American of uncertainty, but we will not miss
dealmakers looking further afield out on the chance to acquire a key
Fig. 4: China Deals by Industry Sector strategic target because of that,” an
and Deal Value for value.”
executive at a London-listed company
—Managing director of global with a large US revenue base says.
investment bank “Policies typically veer to the
extremes in the primaries and then
2015 2019 tack back to centre”.
A Warren or Sanders victory could
also have consequences for Sectors such as health care, energy
wider transatlantic M&A, as their and technology may be more
positions on international trade and exposed to a pre-poll deal dip, as
Health care Financials globalisation are even more inward these are the areas where a
Tech and Comms Industrials than that of Trump. This would Democrat victory could see the
Energy make a post-Brexit free trade biggest changes to pricing, taxation
agreement with the UK more difficult and regulation. However, overall
Fig. 3 and 4 Source: S&P Global Market
to negotiate, with knock-on impacts favourable deal fundamentals should
Intelligence (and its affiliates, as applicable), 2020.
for transatlantic deals. override political volatility.
A Trump victory in 2020 is likely to Outlook
extend this streak of strong M&A Given the strength of the US economy There’s uncertainty
activity. However, stark differences and the record amount of dry powder
building ahead of the US election
between his policy agenda and available to buyout firms, dealmakers
those of the Democrat candidates are will not be able to sit on their hands and dealmakers will be hoping for
set to emerge, which will add a layer awaiting the poll result. a result that provides stability on
of uncertainty to deal activity. taxation, foreign policy and trade
Investors will be working scenarios
For example, if Joe Biden wins the for various outcomes into investment strategy. M&A investors will
nomination he will campaign on a cases. Private equity investors could want to know where we are going
more moderate platform, but should move to accelerate realisations ahead to be in the months and years
Elizabeth Warren or Bernie Sanders of the election to de-risk portfolios in
anticipation of a potential Warren or after the election.”
progress, the risk of deal disruption
will heighten materially. Sanders presidency. Large corporates,
—Senior M&A advisor at global
meanwhile, will be more cautious
investment bank
An Elizabeth Warren victory would be before moving in on large, long-term
of particular concern to US private strategic deals until after the election,
equity firms. In July 2019 Warren gave but not at the risk of losing assets to Akin Gump outlook:
a speech accusing buyout dealmakers competitors.
of “bleeding” companies dry. Warren
Very positiveSources: Fig. 1, 2, 3 and 4 Copyright © 2020, S&P Global Market Intelligence (and its affiliates, as applicable). Reproduction of any information, data or material, including ratings (“Content”) in any form is prohibited except with prior written permission of the relevant party. Such party, its affiliates and suppliers (“Content Providers”) do not guarantee the accuracy, adequacy, completeness, timeliness or availability of any Content and are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, or for the results obtained from the use of such Content. In no event shall Content Providers be liable for any damages, costs, expenses, legal fees, or losses (including lost income or lost profit and opportunity costs) in connection with any use of the Content. A reference to a particular investment or security, a rating or any observation concerning an investment that is part of the Content is not a recommendation to buy, sell or hold such investment or security, does not address the suitability of an investment or security and should not be relied on as investment advice. Credit ratings are statements of opinions and are not statements of facts. akingump.com © 2020 Akin Gump Strauss Hauer & Feld. All rights reserved. Attorney advertising. Prior results do not guarantee a similar outcome.
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