Bold and Bright or Dark and Stormy? M&A outlook for 2017

Posted on: October 28th, 2016

As we stand on the threshold of 2017, it seems that a bold and bright path lies ahead for the M&A scene. Going by a new forecast released by the global law firm Baker & McKenzie, in association with Oxford Economics, fundamental drivers of global transactions are pointing to a continued strong upturn in M&A and IPOs in the coming year.

Here is the list of noteworthy projections for 2017.

The next three years will see global equity markets rise 18 percent to $12 trillion in value.
The easy monetary policies and lower oil prices will see developed economies support the collective growth in transactions. However, it will be many of the smaller or emerging economies, which will show the most dramatic growth in deal activity.
The current scenario where private equity firms are sitting on a record $1.1 trillion in uninvested capital could boost global transactions.
Cross-border transactions will take on a more significant role as companies look to gain market presence in high growth markets.
The top countries in forecasted M&A growth will be China (153%), Hong Kong (118%), Netherlands (110%), Mexico (89%), India (72%), United Kingdom (70%), Germany (65%), Indonesia (56%), Saudi Arabia (53%), and United Arab Emirates (50%).
2017’s most active sectors will be Healthcare, Telecommunications and Financials for structural reasons, while Consumer Goods & Services, Technology and Pharmaceuticals will also witness increased activity primarily due to cyclical trends.

The forecast also estimates that the transaction peaks in 2017 and 2018 will not be as high as those before the global financial crisis and that the global economy will not experience the same bubble-like conditions as prior to 2007.

However, for corporate organizations the window of opportunity for strategic cross-border M&A is now, as the structural drivers and cyclical trends such as equity prices and economic conditions such as GDP growth are ripe for deals in the coming year.

In the acquisition financing arena, capital availability is destiny as companies require reliable access to capital to grow over the long term. Unforeseen capital needs usually arise when acquirers least expect it. This can cause some concern for the acquisition financing provider, especially when covenants tighten up and that working capital availability is utilized faster than expected.

Mezzanine debt borrowing is usually a straightforward activity that many companies use for funding of transitional growth. Mezzanine debt lenders are highly transparent about their due diligence approach and their post-closing loan management making it easy for companies to engage with.

Elections have consequences and positive ones at that for the acquisition financing middle market. While much media attention is paid to the direction of the yield curve and the Fed’s likely rate cuts, scant attention is paid to the more important drivers of the acquisition financing market – business psychology and regulatory climate.