The latest Intralinks Deal Flow Predictor report reveals a 7 percent year-over-year (YOY) decline in North American (NA) early-stage M&A activity in Q3 2017. At the same time, according to data from Thomson Reuters and Intralinks’ own analysis, the number of announced M&A deals in NA in Q3 2017 rose by 25 percent. Based on this data, our independently verified predictive model is forecasting that the number of announced M&A deals in NA in Q1 2018 will decline by around 11 percent YOY, mainly due to an exceptionally strong Q1 2017 comparison period.
The number of worldwide announced M&A deals is positioned for a fourth consecutive year of growth in 2017, driven by an extraordinary surge in dealmaking in NA that began in Q4 2016, following the election of US President Donald Trump. Every quarter since the end of Q3 2016 has seen the NA announced deal count grow more than 20 percent YOY. So, it is not surprising that NA dealmakers may have decided to pause for breath.
Supportive financial conditions, a booming US equity market and strong business and consumer confidence have all contributed to the buoyant NA M&A market in 2017. However, dealmakers must also weigh the impact of rising US interest rates and changes to the 23-year-old North American Free Trade Agreement (NAFTA) with Canada and Mexico that the Trump administration is pursuing. If the increasingly bitter negotiations between the US, Canada and Mexico on the treaty collapse, then the nuclear option of a unilateral withdrawal by the US from the agreement may move closer.
Based on our insights into early-stage M&A activity, the healthcare and energy & power sectors are predicted to lead the growth in NA 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 forecasts 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 NAFTA 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 European Union’s General Data Protection Regulation (GDPR), as well as by an increasing focus on cybersecurity due diligence. Dealmakers, especially legal professionals, will also have 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.
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