- Europe,Middle East & Africa (EMEA) outperforms all global regions
- UK early-stage M&A declines
- Globally, FY 2016 will see flat, or only slight, growth in M&A announcements, due to weakness in North America
Despite uncertainty surrounding the timetable and shape of “Brexit”, the EMEA region showed the strongest growth in early-stage merger and acquisition (M&A) activity in Q2 2016 at 15.7% year-on-year, compared to global growth of only 1.2%. The UK, however, is underperforming the rest of Europe, with UK early-stage M&A activity declining by 1.4% in the same period. Due to the length of a typical deal cycle, early-stage M&A activity in Q2 2016 is a strong indicator of future M&A announcements in Q4 2016.
This is according to the latest Intralinks Deal Flow Predictor report released by Intralinks® Holdings, Inc. (NYSE:IL), the leading global provider of software and services for managing M&A transactions. EMEA’s strong Q2 2016 performance is being driven by increasing deal pipelines in France, Italy and Spain, which grew by 34.3 percent, 15.4 percent and 28.4 percent, respectively.
While Q2 2016 only includes one week of data after the UK’s EU membership referendum, early indications from the Intralinks Deal Flow Predictor data since June 23 appear to support the continued divergence of UK and European M&A: in the 4-week period after June 23 2016 compared to the same 4-week period last year, early-stage M&A activity in EMEA, excluding the UK, rose by 19.8 percent whereas in the UK it declined by 7.4 percent.
The Intralinks Deal Flow Predictor also reveals that EMEA deal pipelines are increasing fastest in the Healthcare, Energy & Power, Consumer & Retail, and Industrials sectors, while the Materials and TMT (Telecoms, Media & Technology) sectors are weakening.
The Intralinks Deal Flow Predictor forecasts the volume of future M&A announcements by tracking early-stage M&A activity – sell-side M&A transactions across the world that are in the preparation stage or have reached the due diligence stage. These early-stage deals are, on average, six months away from their public announcement.
“The EMEA region is facing a lot of uncertainty at the moment, and yet it’s still beating early-stage M&A growth across the rest of the world,” said Philip Whitchelo, Intralinks’ vice president of strategy and product marketing. “The fallout from the UK’s vote for Brexit is certainly top of mind for many firms, but we are also seeing European dealmakers adopting a “keep calm and carry on” approach, and starting more deals than last year. With regards to M&A, in the short term at least, European assets could see increased demand. UK assets, however, may have too much risk attached for some acquirers, despite their relative attractiveness after the sharp drop in the value of the pound.”
Germany, meanwhile, has been able to bounce back and is once again showing positive growth in early-stage M&A activity of 9 percent in Q2 2016, following volatility over the previous four quarters. “German Chancellor Angela Merkel’s steady hand in dealing with the German economy is allowing German companies to proceed with investment plans with greater confidence”, said Philip Whitchelo. “Looking ahead, Merkel’s challenge will be to apply the tough but level-headed approach that she has become known for to the UK’s exit negotiations with the EU, particularly with regard to the UK’s continued access to European markets, while at the same time doing what she can to deter other countries from following suit and leaving the EU,” he added.
Other global highlights from the Intralinks Deal Flow Predictor report include:
- In North America (NA), early-stage M&A activity declined by 11.2 percent compared to the same period last year – the second consecutive quarter of declining activity. A slowdown in US economic growth, the prospect of further interest rate rises by the US Federal Reserve in 2016 and uncertainty over the outcome of the US Presidential election in November have combined to cause NA dealmakers to pause for breath in 1H 2016.
- In Asia-Pacific (APAC), early-stage M&A activity declined very slightly by 0.4 percent. South East Asia (down 47.8 percent) and North Asia (down 8.3 percent), are showing the weakest levels of growth, with the rest of the region, especially India and Australia, performing strongly.
- LATAM has staged a recovery in Q2 2016: despite the continued slump in Brazil (down 1.8 percent) and weakness in Mexico (down 29.4 percent), most other countries in the region are showing double-digit increases in early-stage M&A activity. Despite the boost to the Brazilian economy from Olympics-related spending, Brazil is enduring its worst recession in over 100 years as the economy continues to struggle due to its heavy reliance on commodity exports, the prices of which have been hit hard by the slowdown in Chinese demand.
The Intralinks Deal Flow Predictor has been independently verified as an accurate predictor of future changes in the global number of announced M&A transactions, as reported by Thomson Reuters.