Growth in UK early-stage M&A activity has slowed to just 3 per cent year-on-year compared to over 14 per cent in the last quarter of 2015 due to uncertainty surrounding the results of the forthcoming EU referendum.
That’s according to the latest Intralinks Deal Flow Predictor (DFP) report released by Intralinks Holdings, a provider of software and services for managing M&A transactions. The findings of the Intralinks DFP are also reflected in the results of the latest Intralinks Global M&A Sentiment Survey, which polled 1,500 global dealmakers, including 135 in the UK, in April 2016. Seventy seven per cent of the UK respondents said that a vote by the UK to leave the EU will have a negative impact on M&A activity in the UK and/or Europe.
Meanwhile, the Europe, Middle East & Africa (EMEA) region is more of a safe haven for M&A deals, with growth of 7.5 per cent in early-stage M&A activity, due to strong performances from Benelux, the Nordics, France, Italy and Spain. EMEA deal pipelines are increasing in the Industrials, Materials and Consumer sectors, while Healthcare, Energy & Power and TMT (Telecoms, Media & Technology) deal volumes are weakening.
The Intralinks DFP forecasts the volume of future M&A deal announcements by tracking the number of early-stage M&A deals that are in preparation or have reached the due diligence stage. On average, these deals are six months away from their public announcement.
According to the latest Intralinks DFP, growth in early-stage M&A activity in EMEA is second only to Asia Pacific (APAC), which is showing a 9.7 per cent increase in early-stage M&A activity.
“In the UK, dealmakers appear more reticent about starting deals, which is a likely result of the pending EU Referendum. Over the next quarter, we expect UK early-stage M&A activity to simmer rather than boil until we know the result on 23 June,” says Philip Whitchelo, Intralinks’ vice president of strategy and product marketing. “Despite the slowdown in the UK, dealmakers still appear willing to start more deals in the wider EMEA region. This should translate into a higher level of M&A announcements in the next six months.”
By contrast, in North America (NA) we are seeing a significant reduction in early-stage M&A activity compared to last year, with a decline of 9.2 per cent – the worst since the recession. In NA, we believe that a combination of factors such as a slowing US economy, declining business confidence, the impact of the December 2015 decision by the US Federal Reserve (Fed) to raise the target range for its key interest rate by 0.25 percentage points (the first increase since June 2006), expected weakness in reported Q1 earnings of US companies and concerns over a deteriorating outlook for global economic growth, have weakened dealmakers’ confidence in initiating M&A transactions. The tight race for the US presidential nomination and uncertainty over the outcome of the election itself, with several of the leading candidates adopting protectionist rhetoric, has also probably contributed to the decline in M&A activity in NA, as dealmakers adopt a risk-off attitude.
Meanwhile, Germany is experiencing a decline in early-stage M&A activity, decreasing by 8.4 per cent. “Germany, as a leading exporter of capital goods, is feeling the impact of the slowdown in demand from China”, Whitchelo adds.
In addition, the rise in popularity of the right wing AFD party in the recent March state elections is adding to the sense of unease among dealmakers targeting Europe’s largest economy. M&A professionals were more hesitant to start deals in March 2016, and early-stage M&A growth dropped by 25 per cent compared to March 2015.
In France, early-stage M&A activity has bounced back following a weak Q4 last year and is now showing growth of 13.8 per cent in Q1 2016. “Dealmakers may be looking forward and hoping that President François Hollande’s “economic and social emergency” measures, announced at the start of 2016, will soon begin to bear fruit,” Whitchelo says.
“Despite the relatively strong performance from EMEA, and based on our insights into early-stage M&A activity across all regions, we are predicting a flat first nine months of 2016 in terms of the number of deal announcements globally compared to last year, due to the declines in NA and Latin America (LATAM). In APAC, announced M&A activity will continue to increase from 2015 levels as dealmakers target acquisitions to benefit from the region’s fast-growing economies and growing middle class, despite the effects on the region from a slowdown in Chinese economic growth.”
