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Which Way Flows the Money?
Ups and Downs in Cross-Border M&As
While investors are still uncertain after 2016, cross-border M&As seem to be thriving. Healthcare, driven by cut- ting-edge technologies, continues to be a hot M&A topic. Meanwhile, the world watches and waits to see how U.S. President Donald Trump will impact global markets.
Aturbulent 2016 and a hectic slate of elections in Europe have left the financial world wary. Cross-border mergers and acquisitions (M&As) dropped sharp- ly in the first quarter of 2017 from the previous quarter but finished slightly higher than the same period a year ago.
TIMES ARE CHANGING
The United States is a deal magnet right now. In 1Q17, North America—pri- marily the United States—account-
ed for more than one-third of all cross-regional transactions. Experts
are torn: most view the U.S. as a safe haven, although no one is certain if President Donald Trump’s proposed economic agenda will happen.
On the other side of the planet, the last five years have witnessed China on an acquisitions tear, but change is imminent there too. In 2016, the nation’s outbound investments were six times more than the volume of inbound M&A. However, stricter reg- ulatory controls on outbound M&A have slowed the behemoth; for ex- ample, first-quarter investment into the United States fell 86 percent compared to 1Q16. This may indicate a trend: Chinese officials want home- grown investors to keep their money in the region, especially in the “One Belt, One Road” initiative.
Adding complexity is President Trump, who may or may not levy
a 45 percent tariff against goods from China, the United States’ largest inbound investor. Such an action could light a match to a trade war and restrict foreign investment in both directions.
EUROPE, LATIN AMERICA FORGE AHEAD
Cautious after the Brexit vote, Europe’s deal seekers are now bullish on the Unit-
ed States—the total value of U.S.–Europe cross-border M&As was up an astonish- ing 82 percent over the same period last year. Gary Posternack, the Global Head of Mergers & Acquisitions at Barclays Plc, notes that European targets are less likely to be affected by the uncertainty surrounding U.S. tax reform.
As for Latin America, deals were down for 1Q17, although the outlook is large- ly positive. “M&A in Latin America re-
THE HOT TOPICS
A key driver of global M&As will be the technology sector, where artificial intel- ligence and other cutting-edge advances propel investment. In China, enterprises are shifting away from natural resourc- es and commodities and toward inno- vative technologies. Technology is also reinventing the healthcare industries with big data, telemedicine, and mobile health. The Asia-Pacific region is an in-
cubator for health-tech startups, which, along with medical device and pharmaceutical companies, are expected to lead the pack.
Finance and consumer goods M&As will decline marginally in 2017, but recovery is forecast in 2018. Technology innovation and consolidation in Europe’s bank- ing industry will drive M&As in finance, while the consumer goods sector in emerging markets continues to profit from more af- fordable energy and higher con- sumer spending. In the energy sector, M&As will recover over the next few years as oil prices increase.
A MAZE OF M&As
Investors sense that the ground, marked by political and econom- ic uncertainty, is shifting around the world. While experts believe that activist investors will contin- ue their enthusiasm, others await action from Donald Trump. Jai-
me Costa, the CEO of BLN Spirits and Wines, said in December 2016, “Right now there is a kind of paralysis while you see what Trump will declare. He has ups and downs, so don’t bet on him.” The U.S. president remains volatile and un- predictable, but Mexico has decided to move forward, Trump or no Trump. It promises to be an exciting ride.
mains active,” says Liliana Espinosa Reboa, Regional Head of M&A in Latin America for Baker McKenzie. “There are many opportunities for long-term invest- ments.” The region’s rising middle class, currency devaluations, low commodity prices, and the demand for infrastructure partners after the Odebrecht scandal will continue to power Latin American M&A.
SPECIAL INSIGHT: CROSS-BORDER M&As
The recent trend of increased government intervention is likely to continue in 2017 as we see populist and protectionist policies gain traction and governments bolster their powers to block geopolitical threats.
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