In the latest edition of Horizons, BDO’s M&A experts forecast 8,289 mid-market transactions for 2018, a year-on-year increase up from 7,962, representing a 4% growth. The M&A outlook is positive, says BDO, as pressure from shareholders and the search for innovation continue to drive corporates towards M&A.
BDO is predicting that, as traditional sectors continue to blur under pressure from digitalisation, cross-sector M&A will accelerate in the years ahead. Cross-sector M&A activity in 2017 peaked at US$ 961bn, 21% above the 10-year historical average of US$ 794bn. Industry 4.0 is increasingly prominent in almost all major M&A sectors, setting off an increase in cross-sector deals, says BDO.
Q1 typically generates fewer deals, but it’s worth noting that the biggest deal volume increase previsions were posted by Israel (+11.8%), Africa (+8.8%), Japan (+5.7) and the DACH region (+4.9). At the other end of the scale, the biggest falls were in the Middle East (-17.4%) and Benelux (-6.3%). In terms of global sectors, the most impressive increases were seen in Business services (+11.0), followed by Consumer (+6.5%) and Energy, Mining & Utilities (+6.4%).
Special feature: cybersecurity 3-step M&A checklist
BDO suggests a three level approach to help buyers determine the potential financial impact on the deal price of the target’s cybersecurity preparedness or lack thereof. BDO’s cybersecurity M&A checklist includes a 3-step list of actions to minimise cyber risks: before, during (pre-close) and after the deal (post-close).
2018 regional reports & predictions
The UK and Ireland saw the quietest middle market M&A period since 2009, with only 91
mid-market transactions completed worth US$ 7bn. Three of the top 10 transactions were in the renewable sector as long-term capital seeks to invest in the safety of wind farms.
Benelux Q1 deals were at 5 year low, a 17% decrease compared to Q4 2017 - but BDO’s Heat Chart registers 186 deals planned or in progress, up from Q4’s 175 projected. In DACH countries, transaction value dropped to US$ 3.9bn in Q1 2018 (-11%) from US$ 4.4bn in Q1 2017. Eight of the top ten deals in DACH in Q1 involved international buyers. Chinese buyers acquired not just industrials but also luxury brands.
In the CEE and CIS region, total deal value in Q1 2018 hit its lowest first quarter figure since 2008. However, the BDO Heat Chart indicates an upturn in 2018 M&A activity, notably in Energy, Mining and Utilities, which remains an important sector for the region. Transactions in Financial services dropped by 63%. On the bidder side, top cross-border transactions during Q1 2018 were made by the United Kingdom, United Arab Emirates, the Netherlands and Monaco.
North America registers only 436 transactions in Q1 2018, amounting to a total value of
US$ 50,634m. This 24% deal volume drop is not mirrored by a value decrease, which is only 0.8% from Q1 2017. Buyers are relaxed given tax reform windfalls amounting to an estimated annual 12% increase in cash flow for the median US company.
In Latin America, the average deal value in Q1 peaked at US$ 113m, the highest since the
US$ 107m average recorded in Q2 2017. Argentina leads the region’s top 10 with 3 deals worth US$ 1,044m. However, BDO’s perception is that a main concern in Argentina is the sustainability of operating margins, and the ability of companies to convert profits into cash.
M&A volume in greater China grew 4% in Q1, compared to Q1 2017. Domestic deal-making is picking up due to regulatory measures against capital flight and the pending trade war. OBOR is to invite foreign deals, positively impacting deal activities. US Protection policies are to hinder Chinese M&As in the US, forcing Chinese buyers to adopt more joint venture/minority shareholding structures for their investments.
In Japan, the Olympics are expected to bump up revenues in leisure and real estate, the latter also nudged by the residential land deregulation slated for 2022. In midmarket Pharma, Medical and Biotech, BDO’s Heat Chart forecasts 42 transactions the coming 7 months. Falling birth rates and succession planning gaps may release further acquisitions.
In India, mid-market investments declined and went to established players instead: mid-market
deals fell in Q1 2018 to 54, compared to 82 in Q1 of 2017. But BDO is optimistic and predicts that 2019 Election reforms and India entering new verticals could see transactions triple, from US$ 17.5bn in 2016 to potentially US$ 49.3bn in 2019.