Hesitancy persists as M&A markets remain volatile for Q2 2016

Cross-border M&A volume and values were both subdued in Q2 2016, as investors held their breath.

Headwinds that began to slow the progress of cross-border M&A in Q1 2016 continued to strengthen. Hesitancy persisted as global markets remained volatile: China’s slowdown showed no signs of abating; oil prices were still down despite recovering some ground; and political uncertainty grew globally. The UK held its EU referendum, presidential nomination campaigns occurred in the US, and a number of other parliamentary elections were held worldwide.

As a consequence, Baker & McKenzie’s Cross-Border M&A Index, which tracks quarterly deal activity using a baseline score of 100, dropped to 176, down 33% from Q2 2015’s total of 263, the lowest Index result since Q3 2013. Buyers announced 1,320 cross-border deals worth US$214bn, a 4% drop in volume and a 45% drop in value compared to Q2 2015. The EU (particularly the UK) and North America experienced the largest reductions in deal values.

The drop can be attributed, at least in part, to fewer megadeals – those above US$5bn in value – in the first half of the year. While there were 21 megadeals struck in the first half of 2015 with a total value of US$296bn, the 18 thus far in 2016 are worth 23% less at US$228bn. Only three of those occurred in Q2 2016 (worth US$29bn).

North America was the largest cross-regional outbound market by volume, with 263 outbound deals worth US$38.5bn – 67% of those targeted the EU. Asia Pacific, while not as acquisitive with 188 deals, spent US$50.5bn on cross-regional deals. Its main target was also the EU, spending US$29bn across 96 deals.

On the sector side, industrials (199 deals), technology (182 deals) and business services (172 deals) topped the volume charts, followed close behind by consumer (160 deals). Pharma produced the highest-value Q2 deal: German pharma specialists Boehringer Ingelheim acquired French veterinary pharma company Merial, in a swap of assets transaction worth US$12.56bn.

We expect cross-border activity to remain slower, but steady, as risk factors continue to influence investment decisions.