Cross-border mega deals 'almost disappeared' in Q1 as global activity slumps: Report

SINGAPORE - A global slowdown in mergers and acquisitions (M&A) activity in the first quarter of 2019 was precipitated by great market volatility, US-China tensions, Brexit anxiety and strengthening economic headwinds, deal intelligence service Mergermarket said in a report on Wednesday (April 3).

Globally, the value of M&A deals dropped 15 per cent to US$801.5 billion for the first quarter of 2019, from US$943.5 billion for the eyar-ago period. The number of deals fell 30 per cent to 3,558 from 5,085 a year ago.

"Large cross-border deals, which propelled M&A activity in the past five years, have almost disappeared," said the report.

Only nine mega deals (above US$10 billion) have been struck so far this year, down from 14 for the first quarter of 2018. Only one - Newmont's acquisition of Canada-based Goldcorp for US$12.8 billion - was a cross-border mega deal. And all but two - the Newmont deal and Saudi Aramco's acquisition of Saudi Basic Industries Corporation (Sabic) for US$70.4 billion - were the result of US-based corporates taking out competitors in their home market.

Total cross border M&A accounted for 30.8 per cent or US$246.9 billion of global M&A in the first quarter, compared with 38 to 40 per cent on average between 2015 and 2018.

Outbound activity collapsed to "levels unseen" since the fourth quarter of 2012, and was the worst first quarter on record since the first quarter of 2012. The report added this was due mainly to another contraction in Chinese outbound deals amid tighter regulation and increasing US clampdown on China-outbound acquisitions.

European parliament legislation in February 2019 to screen foreign takeovers was also seen as a move "largely aimed at Chinese acquirers". That being said, China remains the most significant outbound player in the region, said Mergermarket.

In Europe, only 17 deals totalling US$2.3 billion were struck by acquirers from China and Hong Kong, the lowest since the fourth quarter of 2013.

The largest deal this year thus far is Bristol-Myers Squibb's US$89.5 billion bid for Celgene. Mergermarket said this shows a continued demand for "transformative deals in the pharmaceutical, medical and biotech sector".

In the Asia-Pacific excluding Japan, M&A deal value "nosedived" 24.5 per cent for the first three months of 2019 to 666 deals worth US$119.9 billion - its lowest since the first quarter of 2014, amid economic headwinds and the unresolved US-China trade war.

Notable exceptions were Singapore, Thailand and Indonesia, where M&A value increased despite fewer deals, due to a number of large cap deals. CapitaLand's US$8.1 billion bid to acquire Temasek subsidiary Ascendas-Singbridge was the largest M&A deal in the first quarter of 2019.

Industrial and chemicals remained the busiest sector for M&A in both value and volume in Asia totalling US$21.5 billion across 132 deals, an 11.3 per cent drop in value compared to last year. The largest deal in this sector was CITIC Limited's subsidiary Daye Special Steel's takeover of Jiangyin Xingcheng Special Steel Works from CITIC Pacific Special Steel Investment for US$2.6 billion.

The consumer sector ranked second in value at US$17 billion across 66 transactions, and was up 22.2 per cent year-on-year.

Private equity firms saw buyouts drop to 66 deals worth US$8.7 billion, the lowest since the first quarter of 2013.

Despite the first-quarter slowdown, Mergermarket sounded optimistic going forward.

"With pockets of consolidation in some particularly hot sectors, vigorous private equity activity and a healthy domestic deal flow in the US should give hope to dealmakers for the rest of 2019," said Beranger Guille, global editorial analytics director at Mergermarket.

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