Cross-border M&A heats up

New Cross-Border M&A Index reveals sustained appetite for global M&A

The boundaries between domestic and cross-border M&A have become increasingly blurred as companies pursue a growing number of large overseas transactions to remain competitive and fulfill their strategic objectives. The results of Baker McKenzie's first Cross-Border M&A Index show this trend continues, with a score of 231 for the third quarter of 2015.

The index, which tracks levels of cross-border M&A back to Q1 2010 and uses a baseline score of 100 (representing the level of activity in 2009), reveals that deal activity first broke 200 in Q2 2014 and has remained above that number for the past seven quarters. Although the factors underpinning this streak have varied, the latest score for Q3 2015 was driven by high-value deals between bidders and targets based in different regions.

In fact, cross-regional activity totalled $309.8bn in Q3, up 87% from the previous quarter and 31% above the same period in 2014. The largest deal of the quarter was Israel-based Teva Pharmaceutical's $40.5bn purchase of Allergan's generic drug unit in the US, a merger motivated by Teva's strategy to increase scale in the hotly competitive generic-drug market and put itself at the forefront of a sector that is becoming increasingly globalized.

In contrast the value of cross-border deal activity within regions fell sharply in Q3, down 71% from the previous quarter – a period boosted by Royal Dutch Shell's $81.1bn acquisition of the UK's BG Group. The number of cross-border deals both within regions and between regions also fell slightly in the third quarter, reflecting the continuation of a modest downward trend that began in the first quarter of 2015.

That downward trend can be largely attributed to a drop in the number of deals involving European targets (with 2,000 deals in the first nine months of 2015, compared to 2,218 in the same period in 2014) because of growing concern about continued tension in Ukraine, economic instability in Greece and the disappointing pace of recovery in the EU so far this year.