Prepare for the global M&A revival urges Clifford Chance

Global merger and acquisition activity has stalled in the face of political and economic headwinds, notably a “continued lack of resolution to the Eurozone crisis”, but once confidence returns, all the factors are in place for more deals and strong activity, according to a report from legal and advisory firm Clifford Chance.

The report highlights M&A trends from 2011 and likely drivers for activity in 2012.Global economic uncertainty and regulatory change will continue to depress deal flows in the coming year, and worries about sovereign debt, economic slowdown and the Eurozone crisis are contributing to an unsettled picture.
However M&A is continuing despite the challenging environment, and in some areas, there should be “significantly more confidence in doing deals” as the year progresses.

Matthew Layton, global head of Corporate at Clifford Chance, said the first half of 2011 showed there is an appetite for corporate M&A activity. This tailed off at the end of the year in correlation to events in the global economy.

“Once confidence returns, the fundamentals are certainly in place for M&A activity to increase significantly as we move through 2012 and into 2013. In particular there are significant cash reserves on corporate balance sheets in North America and Europe, and liquidity in private equity funds seeking deal opportunities.”

“Equally, on the sell-side, regulatory change will increasingly drive the need for continued consolidation in some sectors, particularly financial services. Relatively low valuations mean we could see more unsolicited transactions and innovative deal structures.”

In 2011, global M&A transactions totalled $2.18trn, the highest total since 2008. Cross-border activity rebounded strongly, representing 41.5% of global M&A activity. Deals between regions were up 20% year on year.It was strongest year for private equity buy-out activity since 2008, and the least hostile period for public M&A since 2007, the report said.

North America (including Canada) saw highest growth in M&A in 2011 (up 12.6% on 2010), followed by Europe (up 4.8% on 2010). The fourth quarter saw a 31.9% drop in Asia-Pacific M&A, and a 28.7% drop in European M&A compared with Q3.Australia became the single largest investment destination for Chinese investment. Energy, Mining and Utilities were the most active sectors, with $557.7bn worth of deals.

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