- 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.
Sunak warns of bill to be paid to tackle Britain’s ‘exposed’ finances – FT
(Reuters) – British finance minister Rishi Sunak will use the budget next week to level with the public over the “enormous strains” in the country’s finances, warning that a bill will have to be paid after further coronavirus support, according to an interview with the Financial Times.
Sunak told the newspaper there was an immediate need to spend more to protect jobs as the UK emerged from COVID-19, but warned that Britain’s finances were now “exposed.”
UK exposure to a rise of one percentage point across all interest rates was 25 billion pounds ($34.83 billion) a year to the government’s cost of servicing its debt, Sunak told FT.
“That (is) why I talk about leveling with people about the public finances (challenges) and our plans to address them,” he said.
The government has already spent more than 280 billion pounds in coronavirus relief and tax cuts this year, and his March 3 budget will likely include a new round of spending to prop up the economy during what he hopes will be the last phase of lockdown.
He is also expected to announce a new mortgage scheme targeted at people with small deposits, the UK’s Treasury announced late on Friday.
Additionally, the government will also announce a new 100 million pound task force to crack-down on COVID-19 fraudsters exploiting government support schemes, it said.
(Reporting by Bhargav Acharya in Bengaluru; Editing by Leslie Adler and Cynthia Osterman)
G20 promises no let-up in stimulus, sees tax deal by summer
By Gavin Jones and Jan Strupczewski
ROME/BRUSSELS (Reuters) – The world’s financial leaders agreed on Friday to maintain expansionary policies to help economies survive the effects of COVID-19, and committed to a more multilateral approach to the twin coronavirus and economic crises.
The Italian presidency of the G20 group of the world’s top economies said the gathering of finance chiefs had pledged to work more closely to accelerate a still fragile and uneven recovery.
“We agreed that any premature withdrawal of fiscal and monetary support should be avoided,” Daniele Franco, Italy’s finance minister, told a news conference after the videolinked meeting held by the G20 finance ministers and central bankers.
The United States is readying $1.9 trillion in fiscal stimulus and the European Union has already put together more than 3 trillion euros ($3.63 trillion) to keep its economies through lockdowns.
But despite the large sums, problems with the global rollout of vaccines and the emergence of new coronavirus variants mean the future path of the recovery remains uncertain.
The G20 is “committed to scaling up international coordination to tackle current global challenges by adopting a stronger multilateral approach and focusing on a set of core priorities,” the Italian presidency said in a statement.
The meeting was the first since Joe Biden – who pledged to rebuild U.S. cooperation in international bodies – U.S. president, and significant progress appeared to have been made on the thorny issue of taxation of multinational companies, particularly web giants like Google, Amazon and Facebook.
U.S. Treasury Secretary Janet Yellen told the G20 Washington had dropped the Trump administration’s proposal to let some companies opt out of new global digital tax rules, raising hopes for an agreement by summer.
“GIANT STEP FORWARD”
The move was hailed as a major breakthrough by Germany’s Finance Minister Olaf Scholz and his French counterpart Bruno Le Maire.
Scholz said Yellen told the G20 officials that Washington also planned to reform U.S. minimum tax regulations in line with an OECD proposal for a global effective minimum tax.
“This is a giant step forward,” Scholz said.
Italy’s Franco said the new U.S. stance should pave the way to an overarching deal on taxation of multinationals at a G20 meeting of finance chiefs in Venice in July.
The G20 also discussed how to help the world’s poorest countries, whose economies are being disproportionately hit by the crisis.
On this front there was broad support for boosting the capital of the International Monetary Fund to help it provide more loans, but no concrete numbers were proposed.
To give itself more firepower, the Fund proposed last year to increase its war chest by $500 billion in the IMF’s own currency called the Special Drawing Rights (SDR), but the idea was blocked by Trump.
“There was no discussion on specific amounts of SDRs,” Franco said, adding that the issue would be looked at again on the basis of a proposal prepared by the IMF for April.
While the IMF sees the U.S. economy returning to pre-crisis levels at the end of this year, it may take Europe until the middle of 2022 to reach that point.
The recovery is fragile elsewhere too. Factory activity in China grew at the slowest pace in five months in January, and in Japan fourth quarter growth slowed from the previous quarter.
Some countries had expressed hopes the G20 may extend a suspension of debt servicing costs for the poorest countries beyond June, but no decision was taken.
The issue will be discussed at the next meeting, Franco said.
(Additional reporting by Andrea Shalal in Washington Michael Nienaber in Berlin and Crispian Balmer in Rome; editing by John Stonestreet)
Bank of England’s Haldane says inflation “tiger” is prowling
By Andy Bruce and David Milliken
LONDON (Reuters) – Bank of England Chief Economist Andy Haldane warned on Friday that an inflationary “tiger” had woken up and could prove difficult to tame as the economy recovers from the COVID-19 pandemic, potentially requiring the BoE to take action.
In a clear break from other members of the Monetary Policy Committee (MPC) who are more relaxed about the outlook for consumer prices, Haldane called inflation a “tiger (that) has been stirred by the extraordinary events and policy actions of the past 12 months”.
“People are right to caution about the risks of central banks acting too conservatively by tightening policy prematurely,” Haldane said in a speech published online. “But, for me, the greater risk at present is of central bank complacency allowing the inflationary (big) cat out of the bag.”
Haldane’s comments prompted British government bond prices to fall to their lowest level in almost a year and sterling to rise as he warned that investors may not be adequately positioned for the risk of higher inflation or BoE rates.
“There is a tangible risk inflation proves more difficult to tame, requiring monetary policymakers to act more assertively than is currently priced into financial markets,” Haldane said.
He pointed to the BoE’s latest estimate of slack in Britain’s economy, which was much smaller and likely to be less persistent than after the 2008 financial crisis, leaving less room for the economy to grow before generating price pressures.
Haldane also cited a glut of savings built by businesses and households during the pandemic that could be unleashed in the form of higher spending, as well as the government’s extensive fiscal response to the pandemic and other factors.
Disinflationary forces could return if risks from COVID-19 or other sources proved more persistent than expected, he said.
But in Haldane’s judgement, inflation risked overshooting the BoE’s 2% target for a sustained period – in contrast to its official forecasts published early this month that showed only a very small overshoot in 2022 and early 2023.
Haldane’s comments put him at the most hawkish end among the nine members of the MPC.
Deputy Governor Dave Ramsden on Friday said risks to UK inflation were broadly balanced.
“I see inflation expectations – whatever measure you look at – well anchored,” Ramsden said following a speech given online, echoing comments from fellow deputy governor Ben Broadbent on Wednesday.
(Editing by Larry King and John Stonestreet)
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