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 key drivers for 2012 are expected to be divestments and privatisations in the Eurozone, the ongoing fight among companies to secure natural resources and energy assets and the access to growth markets. There will be increased shareholder pressure to deploy cash sitting on corporate balance sheets.
However, the new year brings new challenges. Clifford Chance expects a return to more prolonged deal-doing processes, as buyers require more due diligence and more downside contractual protection. Reverse break fees and go-shop provisions will be more prevalent, and particularly in the US, shareholder pressure and activism will have an increasing influence on transactions.
Protectionist measures evident in proposed deals during the past year will continue to impact deal flows in 2012. Antitrust regulation is growing as more countries develop merger control regimes. There are now over 100 merger control regimes across the globeand the opportunities for divergence are expected to increase.
The impact of the political environment on deal flow, with forthcoming presidential elections in the United States, Russia and France and leadership transition in China, remains uncertain.
Comments Layton: “What we are hoping for in 2012 is stability in the economic markets, and a decrease in geo-political risk, which will have the effect of encouraging buyers and sellers to re-engage in M&A discussions. Without these factors, there is unlikely to be any major uptick in general levels of activity and the current caution surrounding transformational, ‘bet the shop’ deals will continue.”
“Even if that is the case though, we anticipate a continued focus on cross border M&A and opportunities for increased activity around strategic alliances, asset swap deals and other transactions with lower risk, as well as spin-offs and deals arising from corporate debt restructurings and regulatory change.”