Headlines

  1. Current trends suggest that the total deal value of inbound M&A activity in 2015 will match or exceed last year's, while outbound activity will drop slightly
  2. China, Japan and India rank among the top ten acquirers in the US market. China is now the fourth-largest buyer in the US market, up from the sixth last year
  3. Technology is the top sector for both inbound and outbound US deals

A  philosophical shift

Whether it’s FedEx’s $4.8bn proposed acquisition of Dutch TNT Express, or Swiss insurer ACE buying The Chubb Corporation for $28.3bn, cross-border M&A into and out of the US continues to gain momentum. Despite a slight drop from last year's post-crisis high of $305bn, US outbound M&A activity in 2015 appears poised to outpace every year since 2008, with 917 deals valued at $163.6bn through September.

The recent uptick in M&A activity has been largely driven by US companies seeking access to new customers, industries and markets as a strong dollar and optimism about the US economy has made dealmaking more affordable and attractive. Another factor is a transformation in how buyers view M&A.

“Many companies are not distinguishing between cross-border and domestic targets anymore as they become increasingly comfortable pursuing overseas targets," Baker McKenzie M&A Partner Matthew Gemello says. "That’s a fairly significant philosophical shift.”

Coming to America

Inbound deal activity by foreign buyers seeking US assets is rising quickly. Deal value for 2015 through Q3 stands at $344.5bn, nearing 2014’s full-year post-crisis record of $380bn. If the upward trend continues, it's likely that 2015 will become the biggest year for US inbound deals since the heady days of 2007.

“As the world gets smaller, people around the world have a broader knowledge of foreign markets and are more comfortable doing transactions in the US,” says Michael DeFranco, Global Head of M&A at Baker McKenzie. “While companies recognize that engaging in a cross-border transaction brings more challenges and complexity, they also recognize that being well advised will allow them to mitigate those risks and benefit from being engaged in expanded markets.”

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Asia inbound

Buyers from Asia-Pacific have been particularly active in the US market this year, a trend that appears to be sector and country specific. In the first three quarters of 2015, for example, Japanese acquisitions in the US financial services sector jumped to 10, up from only two deals in 2014.

Japanese buyers have also been active in the US insurance market, pursuing overseas acquisitions as a strategy to compensate for low growth at home. In July, Japan’s Meiji Yasuda Life Insurance acquired US-based StanCorp Financial Group for $4.9bn.

“The recent spate of insurance deals from Japan illustrates the increased comfort of foreign buyers entering highly regulated US markets and industries,” DeFranco says.

Overall, Japan has also maintained its position as the third most active buyer of US targets so far this year, with 53 deals totaling $29.5bn.

Following close behind, China is now the fourth-largest buyer in the US, up from sixth place in 2014. Chinese buyers are primarily looking to source technology from the US, such as Tsinghua Unisplendour’s $3.8bn bid for a 15% stake in hard drive manufacturer Western Digital Corporation. If Tsinghua’s bid is approved by US regulators, the deal will become the single largest Chinese investment in a US company to date.

Meanwhile, India jumped to 10th place this year, up from 12th in 2014, with 16 transactions valued at $1.7bn. The majority of those deals have been in the life science sector, with six transactions totaling $1.5bn, as Indian companies seek to increase their scale in the US generics market.

Tech takeovers

US deal activity in the technology sector continued where it left off in 2014, with 292 transactions in the first nine months of 2015, comprised of 179 outbound and 113 inbound deals. US tech buyers made the bulk of those cross-border acquisitions in the EU (82 deals), followed by targets in Asia-Pacific (35 deals). Buyers from the EU were the most active players in the US tech sector, accounting for 47 inbound deals.

Given that technology is a sector of rapid innovation and fierce competition, it is unlikely that deal activity will slow in 2016. Strategic acquisitions are often the quickest, most expedient way technology companies can acquire new technologies, products and service offerings, as well as high-performing talent. In the quest for innovation, it appears US tech executives are also becoming more comfortable with cross-border acquisitions.

“For the big tech companies in Silicon Valley, there has been a general easing of concern about managing talent and assets located out of eyeshot,” Gemello says. “Our technology clients recognize that they have to go beyond domestic deals to find the game-changers for their businesses.”


Eye  on the future: three key trends to watch

  1. Indian  summer Beyond 2015, India could become the new sweetheart for US dealmakers, much like China was three to four years ago, as the Indian government continues to pursue reforms to open the economy to foreign investors. "There is optimism and people are moving into India for that reason,” DeFranco says.
  2. Chinese  slowdown In the past year, US outbound activity into China has cooled, with China dropping out of the top ten destinations for US investment. Both the number of deals and value of deals by US buyers in China is down significantly from prior years. “The economic slowdown in China has given US multinationals the opportunity to pause and evaluate their China expansion strategy without having to feel like they are losing ground to their competitors,” Gemello says.
  3. Potential  risks Although global cross-border M&A shows few signs of slowing, risks always exist that could disrupt market activity, such as changes in the macro-economy. “If the US Federal Reserve raises interest rates faster than expected or China’s slowdown is greater than anticipated, it could create uncertainty that gives dealmakers pause,” DeFranco says. In addition, deals with European countries could slow if the UK decides to leave the EU or Greece exits the Eurozone.