Global M&A market grows to 5 trillion in deal value

11 January 2016 Consultancy.uk

M&A activity reached record numbers in 2015, totalling almost $4.9 trillion in more than 7,500 deals, research by McKinsey & Company shows. Deal volume increased 8% on 2014 and deal value 37%. The reason for deal activity is no longer focused primarily on cost reduction and industry consolidation – cross-selling, access to new customers and transformation now also sound new tones.

In a recently released McKinsey & Company article, titled ‘M&A 2015: New highs, and a new tone’, the consulting firm explores the M&A environment in 2015 with respect to the past decade. The article finds that “deal activity surged again this year— especially big deals and those in the United States.”

McKinsey’s research shows that M&A activity has hit record numbers in 2015, following a number of relatively lacklustre years following the 2008 financial crisis. Since 2012, M&A increased with an average of 25% per annum, up from $2,504 billion in 2012 to $4,894 billion in 2015 – and almost $400 billion more than in the previous record year of 2007. These numbers reconfirm previous researches from EY and from Mergermarket, which found M&A activity reached its highest level in 2014 in five years, and was forecasted to reach $4 trillion in 2015.

In terms of deal value, the Americas continue to lead the pack, booking $2,617 billion worth of deals in 2015 – well above the $1,885 billion worth of deals booked in 2007. The area that lost the most ground is Europe, the Middle East and Africa, where deal value has fallen from $1,943 billion to $1,147 billion. The Asia-Pacific area has seen deal value almost double, up from $670 billion in 2007 to $1,130 billion in 2015. The number of mega deals, those above $10 billion, has seen a steep increase on last year – up 130% year on year in the first 11 months. Medium deals, those worth between $5 billion and $10 billion too saw a relatively strong increase, up 24%. Small deals, those below $5 billion, were up 10% on the year previous.

The announcement effects for acquirers in large deals, deal value added (DVA), has in recent years been relatively negative – hitting positive territory for the first time in McKinsey’s records in 2013. Since then, DVA for the acquirer has again dipped only slightly below the line. Target DVA remains strongly above the line, while the combined effect comes in at around 10% in 2015. The consultancy notes however that there is no link to be found between perceived DVA, and its real world effects, and the deal’s eventual value: “Our analysis of past deals has found no correlation between share price movement in the days after a deal is announced and a company’s excess total return to share-holders two years after a deal, when most synergies are captured.”

The research also highlights that the reason for deals has changed somewhat in recent years. Big deals were historically seen as a means of cost reduction and industry consolidation—and many still are. McKinsey notes however that diversification and revenue growth have also become reasons to enter into deals, as well as cross-selling, creating new customer opportunities, and transformation.

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