According to the latest Intralinks Deal Flow Predictor report, early-stage M&A activity in Q3 2017 increased by 7 percent year-over-year (YOY) in Europe, the Middle East & Africa (EMEA). At the same time, according to data from Thomson Reuters and Intralinks’ own analysis, the number of announced M&A deals in EMEA in Q3 2017 rose by 1 percent. Based on this data, our independently verified predictive model forecasts that the number of announced M&A deals in EMEA in Q1 2018 is expected to increase by around 6 percent YOY.
This is despite the lacklustre performance of the UK and Germany, two of the region’s largest M&A markets. In Germany, the number of announced deals fell by 8 percent YOY during the first three quarters of 2017, and early-stage M&A activity declined by 10 percent in Q3. In the UK, early-stage M&A activity fell by 5 percent in Q3 2017. The rest of the region performed well, with double-digit increases in early-stage M&A activity in Eastern Europe, the Middle East, Africa, Northern Europe, Spain and Italy.
In Germany, Angela Merkel won a fourth term as chancellor in September’s elections. However, a sharp fall in support for her conservative Christian Democrat-led alliance and advances by the country’s far-right populist party, the Alternative for Germany, left her short of an absolute majority in parliament. In November, the chancellor’s efforts to form a coalition with the liberal Free Democrats and environmental Greens collapsed. Formal talks with the second largest party, the Social Democrats, to explore the possibility of another so-called “grand coalition” of the left and right may begin in January. If these fail, Merkel could try to form a minority government – or the country could be heading for fresh elections in 2018. Meanwhile, the political paralysis in Europe’s largest economy continues.
Eighteen months after the UK’s Brexit referendum, negotiations have still not begun with the European Union on the terms of a trade deal after Britain leaves the bloc in March 2019, causing increasing nervousness among businesses, and in the City. Since the vote in June 2016, Britain has fallen from the top to the bottom of the economic growth league table of G7 economies, by recording growth of 1.5 percent in the 12 months to the end of June 2017 1. UK inflation is also rising, hitting a five-year high annual rate of 3.1 percent in November, over one percentage point above the Bank of England’s target 2. On November 2, the Bank of England responded by raising its benchmark interest rate, for the first time in more than a decade, by one quarter of a percentage point to 0.5 percent, citing the need to control rising inflation 3.
Based on our insights into early-stage M&A activity, the materials, real estate and healthcare sectors are predicted to lead the growth in EMEA M&A announcements over the next six months.
Worldwide, early-stage M&A activity in Q3 2017 increased by 5 percent YOY. At the same time, according to data from Thomson Reuters and Intralinks’ own analysis, the number of worldwide M&A deals that were announced in Q3 2017 increased by a healthy 12 percent YOY. Based on these data points, our predictive model is forecasting that the number of worldwide announced M&A deals in Q1 2018 is expected to increase by up to 6 percent compared to Q1 2017.
Globally, the dealmaking environment continues to be supported by a combination of a gradual pickup in global economic growth, subdued inflation in advanced and emerging economies, buoyant asset markets and historically low interest rates. The risks to the scenario of steadily increasing M&A activity are twofold: political and financial. Increases in economic nationalism, protectionism and restrictions on global trade and cross-border economic integration (e.g. Brexit and the North American Free Trade Agreement negotiations) all have the potential to negatively affect dealmaking sentiment. With global equity markets at record highs, and almost nine years since the last major trough, a correction that turns into a more serious sell-off could also prove negative for dealmaking confidence.
M&A markets in 2018 will be impacted by new data privacy regulations, such as the EU’s General Data Protection Regulation (GDPR), as well as by an increasing focus on cybersecurity due diligence. Dealmakers, especially legal professionals, will also need to get used to changes in deal preparation and due diligence brought about by the increasing use of artificial intelligence and machine learning tools in M&A. Read about these emerging trends in this and previous editions of the Intralinks Deal Flow Predictor report.
To get more regional and sector insights, and to know the future of global M&A six months ahead of everybody else, download your copy of the Intralinks Deal Flow Predictor here.