Blockbuster deals push up Q3 values

While political and macroeconomic uncertainty put a dampener on M&A volume in Q3, it hasn't prevented deal value from rocketing quarter-on-quarter.

Large multinational strategic buyers are maintaining a growth rationale that favors acquisitions, pushing up cross-border valuations. As a consequence, Baker McKenzie’s Cross-Border M&A Index, which tracks quarterly deal activity using a baseline score of 100, climbed to 238, up 23% from Q2’s total of 194. And, while Q3 2016 is 10% down on the total for the same period in 2015, it is above any quarter between 2009 and 2013.

Buyers announced 1,275 cross-border deals worth US$373bn, a 15% drop in volume but a 64% surge in value compared with the previous quarter. Cross-regional deals saw the greatest increase in value (82%) while intra-regional value had a still substantial 32% rise.

The drop in volume can be attributed to tightening US monetary policy, along with uncertainty caused by the Brexit vote and the US elections. However, in better news for mid-market M&A, global volumes traditionally drop around US elections but then pick up once there is more certainty around the direction of US policy.

The increase in value has been driven by renewed confidence at the upper end of the market with several blockbuster deals being announced. While deals above US$1bn were 25% down on the same period in 2015, they were still a regular occurrence – particularly inbound into the US.

For example, the biggest deal of the quarter was German chemical giant Bayer AG’s US$65bn acquisition of US-based agrochemicals company Monsanto in September. The wave of large deals into the US also included Canada’s Enbridge agreeing to buy Spectra Energy for US$41bn and France’s Danone acquiring The WhiteWave Foods Company for US$12bn.

On the sector side, chemicals and materials, energy and utilities and technology were the drivers for most of the high value M&A, with deal totals of US$77bn, US$73bn and US$60bn respectively. In technology, the standout cross-border deal saw Japan’s SoftBank Group pay US$30bn for UK semiconductor manufacturer ARM Holdings – one of a number of deals that pushed Asian outbound deals into Europe to record levels.

As the dust settles around Brexit and the US presidential election reaches its conclusion, investors, particularly those in the mid-market, will be hopeful of a bounce back in dealmaking volume in Q4 and beyond.