2020 vision: Global M&A may defy predictions again

Jan 2020


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In our latest post, we turn to crises – and, more importantly, how to manage them. Crises can take a number of forms and by their nature they happen unexpectedly without warning.  Inhouse counsel have an important role in identifying risks in order to prepare for a crisis.  While a crisis is unfolding, inhouse counsel are critical in protecting privilege and providing legal advice in the moment.

The drive towards clean assets is unrelenting, tech, med-tech and fin-tech will likely dominate, and an older, richer populace will support healthcare M&A.

It wouldn’t be the first full week of January without a slew of predictions on global and domestic mergers and acquisitions levels for the year ahead.

The vast majority will ring the bell for growth in M&A volumes and values, with a few black hats forecasting specific prior corresponding period reductions (“20 per cent down”, “falling off a cliff” and so forth).

The truth is that no one ever really has much idea at all. Even coming into a year with a great M&A pipeline can be misleading because deal closure rates have been significantly down in recent years – principally on the back of regulatory hurdles, market volatility and investor activism.

We all know three massive reasons that 2020 is guaranteed to be the biggest year in M&A on record:

  • Acquisition finance is cheaper than paperclips and available into and from pretty much every sophisticated geography on the planet;
  • There is a ton of dry powder in the private equity firms – ballpark $US1.3 trillion ($1.9 trillion) – and then another ton of equity fire-power in the sovereign wealth funds, pension funds and other financial institutions; and
  • Internal growth efforts, head-count upscaling and business builds never get the growth rates or talent bolt-on that M&A achieves.

The trouble is that each of those reasons have existed for some years now and global M&A values have failed to reach 2015 levels in any of those years.

Each of 2016-2019 have been the same. Regulatory clearances have been down, markets have been all over the place, the geopolitical outlook has been diabolical and investors have given more mixed messages to boards than an excitable amateur coach on the sideline of a school basketball game. Added to this, the world loves to talk itself into recession because it has been a while since the last one and there are lots of global short positions in need of coverage.

So what do we know about the outlook?

For starters, we know that the drive towards clean assets is unrelenting. Carbon-neutral targets are no longer platitudes and a large amount of M&A in the year ahead will be about positioning for the future. As a result, energy will continue to be the most or second-most vibrant sector globally. Lord knows who is going to own all the dirty assets, but there is an M&A strategy just around that and the potential for a divided world once all of it washes through.

“The trouble is that each of those reasons have existed for some years now and global M&A values have failed to reach 2015 levels in any of those years.”

For starters, we know that the drive towards clean assets is unrelenting.

The second thing for sure is that technology M&A will not abate in the year ahead. Straight tech, med-tech and fin-tech are likely to dominate the landscape in 2020. With everyone wanting to get a piece of the action on data, there will continue to be plenty of interest in assets like data centres, registries and cables. Data security will continue to be the only thing that constrains that sector’s tradability, with the Committee on Foreign Investment in the US, Australia’s Foreign Investment Review Board and other foreign investment agencies staring into a busy year.

Healthcare M&A too has no reason to be less vibrant over the next 12 months. It is a solid defensive sector with a simple growth formula: an ageing population supported by a dependency equation that gets more affluent year on year.

In some US election years a pre-election M&A lull might be a certainty. But there is no chance of that this time around. In the most likely outcome, Trump gets a second term and he is pro-business. In the only other conceivable scenario, Bloomberg wins the primaries, runs against him … and, well, we all know the next sentence.

Cross-border M&A has been flatter in recent years and there are no reasons to believe that it will change in 2020. Even if the trade war eases, it will still take some time for the impact of China’s 2016 capital controls, the trade wars and global protectionism to bring those levels up, at least in Asia.

Closer to home, the regulatory impact on boards and senior executives together with the terrible devastation of our bushfires must dampen any expectation of a strong M&A environment. Let’s face it, every one of us is far more focused on how we can help rural Australia than on league tables this January.


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