EU deals and China revival make up for deal market index drop in Q2

As dealmakers adjust to a challenging M&A climate, they have reason to be positive, with cross-border deal value jumping 49% year on year while the Index is up 30 points on Q2 2016.

Global dealmakers faced a range of political challenges in Q2. The nature of the UK’s exit from the EU is still unclear following a snap election which delivered more uncertainty. A cloud of doubt hangs over President Trump’s ability to pass his pro-business agenda through Congress. In spite of this political volatility, M&A has remained stable.

There were a total of 1,368 cross-border deals valued at US$345.8bn announced during Q2, down a mere 1% by value compared to the previous quarter but up 15% year on year.

The EU proved a draw for cross-border dealmaking despite political volatility. The largest cross-border deal of the quarter saw US-based Praxair purchase Germany’s industrial gas firm Linde for US$45.5bn. The deal pushed chemicals and materials into the top value slot for the quarter with US$60.4bn. Industrials led the way in terms of volume with 209 announced deals. This was despite the sector taking seventh place on the value table with US$25.4bn, highlighting a flurry of mid-market activity.

However, there was a quarter on quarter drop of 10% in volume and, as a consequence, Baker McKenzie’s Cross-Border M&A Index, which tracks quarterly deal activity using a baseline score of 100, slipped to 233 in the first quarter of the year. This marks a 4% decrease on the previous quarter. As a result of the drop in volume but considerable rise in value, the cross-border deal average rose to US$477m in Q2—up 63% year on year.

For this quarter, it would appear that the increased risk and uncertainty facing cross-border transactions has led dealmakers to choose to invest more money in a smaller number of handpicked deals.