Despite a backdrop of continued political turbulence, cross-border deal making held steady in Q2 2017, driven by deal activity involving the EU, according to Baker McKenzie’s Cross-Border M&A Index.
Buyers announced 1,368 cross-border deals worth US$345.8 billion, a 10% decrease in volume but only a 1% decrease in value compared to Q1 2017. As the EU gained relative stability in the wake of Brexit developments and elections in the region, it accounted for more than half of cross-border deal value and nearly half of cross-border deal volume in Q2 2017. Baker McKenzie’s Cross-Border M&A Index, which tracks quarterly deal activity using a baseline score of 100, decreased to 233 for Q2 2017, down 4% from the prior quarter but up 15% from Q2 2016. In Q2 2017, cross-border M&A made up 36% and 47% of global deal volume and value, respectively.
“We continue to see an increase in deal value as companies are choosing to invest more money in a smaller number of handpicked deals,” said Michael DeFranco, global head of M&A at Baker McKenzie. “While deal volume decreased in Q2 we are encouraged by the activity in the EU and the return of China to the deal table. As we head into the second half of 2017, we continue to believe M&A activity will pick up.”
The leading bidders for cross-border deals into the EU were the US, China, and UAE, in addition to cross-regional deals from companies in the UK and Italy. Seven of the top ten most targeted countries in Q2 2017 were in the EU, compared to only four in Q1 2017.
Energy & Mining sectors
Cross-border M&A activities in the Energy & Mining sectors globally continue to be on a downward trajectory, as it saw a 49% drop in deal value from Q1 of 2017, reporting only USD 29.2 billion. For the second consecutive quarter, North America remains to be the largest bidder by value, with 36 deals valued at USD 12.4 billion. Asia Pacific is the most acquisitive region in Q2 2017 by deal volume, with 42 deals.
Among the Asia Pacific countries, Hong Kong and China lead with 11 outbound deals each, followed by Australia with eight deals. These outbound M&A investments include three of the Top 5 outbound cross-regional Energy & Mining deals in this region, and they are: i) Shandong Gold Mining ‘s USD960 million acquisition of a 50% stake in Barrick GoldCorp’s mine in Argentina, ii) Fosun International’s USD887 million acquisition of a 10% stake in Polyus Gold Internationalm and iii) Macquarie Infrastructure and Real Assets (MIRA)’s USD1.1 billion acquisition of a 20% stake in Compañía Logística de Hidrocarburos (CLH).
Asia Pacific recorded 31 inbound deals in Q2 2017, a slight increase from 29 deals in Q1. However, the average deal size for the region has shrunk, as the total deal value decreased by almost 80% to USD 2.7 billion from USD 13.5 billion in Q1 2017. Investment values to the Asia Pacific region were driven by intraregional deals from bidders in Australia, China and Hong Kong. In terms of cross-region inbound deals to Asia Pacific, Canada was the top investor putting in USD 168 million, followed by Ireland with USD 150 million.
“Looking ahead, we expect to see increased M&A and divestment activities in the energy sector as power companies look to build up their renewable energy assets and capabilities while divesting their traditional fossil fuel portfolio,” said Martin David, the newly elected Asia Pacific Head of Baker McKenzie’s Energy, Mining and Infrastructure Practice. “Solar and wind, particularly offshore wind in markets like Taiwan and potentially Japan and Korea, present major opportunities for power companies.”
“We are also seeing a rise in corporate power purchase agreements (PPA) as a result of the Paris Agreement, and we expect this trend will continue for some time as multinationals look for ways to reduce their global carbon footprint,” added Paul Curnow, Asia Pacific Head of Baker McKenzie’s Renewable Energy and Clean Technology Practice.