Global M&A activity falls to around $3.8 trillion across 8,000 deals

M&A activity has dropped last year, with deal value was down 17% while deal volume saw a 5% decline. The year was still one of the strongest on record, follow the record year in 2015. Investor enthusiasm has begun to flounder somewhat, although cross-border activity into the EMEA and Americas remains relatively strong.

Global merger & acquisition (M&A) activity reached a new record in 2015, totalling almost $4.9 trillion, a considerable increase on the year previous when $3.5 trillion in deals were announced, and above the previous record peak in 2007 when $4.5 trillion in deals were announced.

In a new report from McKinsey & Company, titled ‘M&A 2016: Deal makers catch their breath’, the consulting firm explores the financials in the M&A landscape and explores wider M&A market dynamics.

While 2015 set records, 2016 was somewhat more lacklustre in terms of activity in announced deals. Deal value was down below $4 trillion to around $3.8 trillion. The number of deals too were down slightly on 2015, falling to just over 8,000. Both deal value and volume therefore saw contractions in 2016 compared to the year previous, deal value down around 17% while deal volume was down around 5%. Average deal value too saw a sharp drop to around $480 million, from the around $525 million the year previous.

The decline in activity, according to the firm’s analysis, can be attributed to a drop in the combined value of megadeals, whose share of M&A activity dropped by 40% - from around a third of all deals in 2015 to around a quarter in 2016. While particularly value fell, 2016 was still a particularly strong year for M&A, with deal value and volume one of the highest in the past decade.

The research also explored cross-border M&A activity, noting that it were particularly Asia-Pacific players entering the EMEA and Americas markets, with net inflows into the region itself at -$276 billion. Buyers from the Asia-Pacific region increased deals into EMEA by 111% to $199 billion and into the Americas by 79% to $149 billion in 2015. Deals from the EMEA to the Asia-Pacific region decreased by ~30% to $32 billion, while from the Americas they fell by ~19 to $39 billion.

From an industry perspective, Industrials and TMT (telecom, media, and technology) were saw the most activity last year, at around a third of all deals. Healthcare saw a 60% decline in deal value last years, while transportation and logistics, jumped from $285 billion in 2015 to $368 billion last year, and energy and utilities, were up from $217 billion to $272 billion.

The analysis further considered the average deal added value DVA* of the past almost two decades. The results show that deal enthusiasm under investors are falling, falling from around 12% between around 2010 to 2014, to around 10% in 2015. Last year it dropped further, to around 8%. Pure stock deals were particularly affected in 2016, falling by 3.6% on average from the year previous.

Acquisition premiums

Relative to the previous two years, acquisition premiums have increased, with financial year premiums on day one standing at 26% in 2014 and 28% in 2016, while at one month, premiums stood at 31% in 2014 and 38% in 2016.

The distribution of 1-month premiums was relatively distributed across a broad range, with 45% of premiums in the 2016 financial year paying out more than 40%, 16% between 30-40%, 16% between 20-30%, 13% between 10-20% and 9% less than 10%.

* DVA stands for the combined acquirer and target change in market capitalisation of publicly traded companies, from two days prior to two days after the deal announcement as a % of transaction value for deals worth more than $500 million.