How a chaotic Grexit could wipe out US$1.4 trillion in global M&A

Tourists visit the temple of Olympian Zeus in Athens, Greece, on July 7,2015.
Tourists visit the temple of Olympian Zeus in Athens, Greece, on July 7,2015. PHOTO: BLOOMBERG

LONDON (BLOOMBERG) - The fallout of a Greek exit from the euro could wipe out as much as US$1.4 trillion (S$1.9 trillion) in future mergers and acquisitions, according to a study by law firm Baker & McKenzie.

A disorderly 'Grexit' - where the financial impact spreads unconstrained across global markets - could stymie about $250 billion of dealmaking next year in Europe, excluding the U.K., according to the study, which is based on financial modeling by Oxford Economics.

The uncertainty created by a Greek exit would likely lower European equity prices, increase bond yields for countries such as Italy and Spain and damp business confidence and investment, the report says.

Transactions in the U.S. and China may also be affected, resulting in lost deals worth about US$700 billion in the two countries through 2020.

A well-managed exit from Europe's single currency would be less harmful in the same five-year period, sending deal activity in the region, excluding the U.K., just two per cent lower.

Euro-area finance chiefs will discuss Greece's economic proposals on a conference call Wednesday morning, the first step toward restarting negotiations that Greece broke off late last month. Greece on Tuesday promised to put its plans in writing as German Chancellor Angela Merkel warned that "only a few days" are left to reach a deal.

Despite large losses in equities seen as vulnerable to Greek contagion, dealmakers remain optimistic. Global M&A activity this year is on track to pass US$3 trillion for the first time since 2007, according to data compiled by Bloomberg.

Among the uncertainty, Greek companies are managing to do deals. U.K. private-equity firm BC Partners agreed on June 3 to buy a majority stake in Athens-based Pharmathen, a drugmaker with about 1,000 employees, while media company Antenna Group is in preliminary talks to buy Turkey's Karnaval Media Group, a person with knowledge of the matter said last month.