ANNUAL REVIEW

Mergers & Acquisitions 2015

August 2015  |  MERGERS & ACQUISITIONS

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2014 was certainly a strong year in terms of global mergers and acquisitions (M&A) activity. In fact, it was something of a bonanza. A year which saw companies, buoyed by record levels of cash, flourishing markets and executives imbued with newfound confidence, negotiate a succession of record-setting and transformative deals to the tune of $3.5 trillion. This global M&A activity, as well as being the highest levels seen since the 2008 financial crisis, is continuing apace, with the 2014 dealmaking frenzy being mirrored in 2015.

 

UNITED STATES

T. Patrick Hurley, Jr

MidMarket Capital Advisors

“Confident strategic buyers and the reasonably strong performance of entrepreneurial owner-managed independent private middle market businesses have driven the surge in activity. While the $50m to $200m deals don’t make headlines, they make up the bulk of the deal flow that is worth talking about. Private equity pros trade companies with each other much differently than strategic players who buy from entrepreneurs to own forever. Asset managers have expected hold periods, but families and closely-held businesses have more discretion and are usually not as straightforward or versed in definitive purchase agreements. Sponsored platform companies tend to go on the prowl for add-ons. We are beginning to see more non-sponsor backed private company owners interested in not missing the current cycle.”

 

MEXICO

Carlos Ramos Miranda

Hogan Lovells

“M&A activity has increased significantly in Mexico, particularly given the implementation of structural reforms that have taken place during the current administration. Over the past few years, Mexico has undergone significant reforms in areas including tax, labour, energy, financial, anti-corruption, anti-money laundering, education and antitrust, to mention some of the most relevant. These reforms are reshaping the legal landscape and have opened the door to new business opportunities. We are seeing an increased interest from foreign investors to either position themselves in the market or strengthen their existing position in the market. There is also a mix of global acquisitions with local components, and specific targeted local acquisitions.”

 

BRAZIL

Thiago Sandim

Demarest Advogados

“There are two short-term trends and one long-term trend shaping M&A activity at the moment. The short-term trends are opportunity and cost. The long-term trend is stability of the legal and regulatory framework. Brazil, in particular, had a quiet last 12 months in comparison with the previous year – some research shows a reduction of around 50 percent in the volume of deals. This is because of the instability caused by presidential elections, uncertainty regarding a possible devaluation of the Brazilian currency and the results of an unorthodox, clumsy economic policy. Most of these affect long-term perspectives and, hence, trends. Consequently, they were detrimental to the deal environment in the last 12 months. Things are now, however, changing for the better.”

 

ARGENTINA

Laura Lavia Haidempergher

M. & M. Bomchil

“In general, M&A activity has increased throughout South America. This is especially true in Brazil, where the declining real has made acquisitions particularly attractive to US investors. Argentina, however, has seen a continuing trend of limited M&A activity, driven by regulations that make it an unappealing market for foreign investors. Specifically, there are restrictions on capital entering Argentina, limits on payment of dividends out of the country, and restrictions to imports and exports. As a result, the majority of M&A activity in Argentina has occurred internally. It is expected that the situation in Argentina will persist at least until the presidential elections take place in October. Most investors are speculating on a change of government with a new political-economic setup.”

 

UNITED KINGDOM

Chris Hale

Travers Smith LLP

“The last 12 months has seen a substantial number of acquisitions by overseas companies, especially from the US, in the UK. This has seen deal values in aggregate increase in the last two quarters. Foreign dealmaking in the UK has been driven by, in the case of the US, the strength of the dollar, an improving economic backdrop, ready availability of financing and pressure on boards or private equity houses to spend the substantial amounts of cash that both have. All that said, deal volumes have not increased. That is in part because high pricing has put off some buyers and there has been uncertainty caused both in the earlier part of the year by the UK election and more recently by the protracted problems and difficulties associated with Greece.”

 

GERMANY

Markus Nauheim

Gibson, Dunn & Crutcher LLP

“During the Eurozone crisis, Germany has proven to be Europe’s strongest and most stable economy offering attractive assets with strong balance sheets and being global leaders in their respective markets. The euro having fallen against the US dollar has resulted in reduced prices for German targets particularly from a US investor’s perspective. The energy transition as expedited by the German government, along with the drop in energy prices, will continue to generate much activity in the energy sector and related industries. Financial investors have a massive amount of dry powder in desperate search for yield; the same is true for many of the corporates that have amassed large amounts of cash over the past years.”

 

CZECH REPUBLIC

Helen Rodwell

CMS Prague

“The trends in deal terms in M&A agreements are telling for the current market sentiment across Europe. After the crisis years, during which buyers had the upper hand in negotiations, we are increasingly operating in a ‘seller-friendly’ environment. Sellers – whether corporate investors or private business owners – are now getting better deals in terms of consideration paid to the assumption of risk after closing. In the last few years there have been numerous targets in Central Europe, but in many cases there was little pressure for the sellers to divest, so if the offers did not match their expectations, transactions would not reach signing. The increased competition among bidders caused by a more stable economic outlook and low interest rates make buyers more flexible in accepting more seller-friendly terms and has resulted in increased deal activity.”

 

ROMANIA

Silviu Stoica

Popovici Nitu & Asociatii

“The general feeling around M&A activity across emerging Europe remains one of cautious optimism, fuelled by clear signs of steady, albeit slow economic growth. The trend is positive as the first half of 2015 brought a fresh round of slight growth around the region. Although investors’ confidence in the region has been really hurt by continued financial and political uncertainty, particularly tensions between Moscow and Kiev, plus Greece’s slide towards an exit from the Eurozone, some of the CEE countries – including Poland and Romania – have remained relatively unaffected, and are considered as increasingly stable investment targets.”

 

UKRAINE

Anna Babych

AEQUO

“Over the last 12 months, M&A activity in Ukraine has been heavily influenced by wider economic instability, Ukrainian currency devaluation and the breakdown of economic ties with Russia. Of course, we should take into account the takeover of the Crimea territory by Russia and military actions in the very Eastern part of the country. On the positive side, however, Ukraine launched a number of complex reforms which brought new life to the country’s political landscape. Judicial reform, police reform, deregulation movements in the Ukrainian economy and, finally, a set of corporate acts improved investor protections. All these factors have impacted M&A activity in Ukraine.”

 

RUSSIA

Melinda Rishkofski

Baker Botts LLP

“Russia has experienced a catastrophic downward trend in M&A activity in the past year due to a combination of Ukraine related sanctions, asset freezes, perceived limited economic growth prospects, low oil prices, rouble depreciation, capital flight, deoffshorisation policies and a number of other factors. With a few exceptions, many foreign companies that have been actively pursuing Russian M&A strategies over the past 10 years are now seeking to extricate themselves from the country. Following the imposition of Ukraine related sanctions in 2014, inbound Russian M&A for 2014 reached a 10-year low. Of the deals that were planned or initiated since early 2014, most have fallen apart due to uncertainties related to valuation of assets, declines in pricing, concerns over protectionism, expansion of government controls and kleptocracy.”

 

JAPAN

Eiji Kobayashi

Norton Rose Fulbright LLP

“M&A activities in relation to Japan seem to have picked up. Outbound M&A by Japanese corporates continue to be strong. Given that a lot of the focus for outbound M&A by Japanese corporates has been, and continues to be, on the geographic expansion of their business outside of Japan, fluctuations in currency exchange rates, while obviously impacting on the purchase price, do not usually play a significant role in the decision to acquire overseas companies. Certainly, it is our experience that the exchange rate is not a significant discussion topic in the boardroom. This has not changed, but the fact that the lower yen has given a boost to the financial performance of those companies with significant overseas businesses exchange rates has been getting some attention. Inbound M&A of Japanese targets seems to have increased, with interest in mid-sized technology and start-up companies as potential targets.”

 

NIGERIA

Konyin Ajayi

Olaniwun Ajayi LP

“M&A activities have gained significant traction in Nigeria over the last 12 months. As an emerging market, Nigeria has the highest growth rate in the world, having witnessed about 6.2 percent growth in GDP in the past year. The rebasing of Nigeria’s GDP in 2014 saw the country emerge as the largest economy in Africa, and the 26th largest in the world. It is not surprising, therefore, that the country has become an attractive investment destination for both local and international investors. In turn, this has had a huge impact on M&A activity in the country. Also, the relative political stability and single digit inflation rate are factors which have made Nigeria attractive to investors and fuelled M&A activity.”


CONTRIBUTORS

AEQUO

Baker Botts LLP

CMS Prague

Demarest Advogados

Gibson, Dunn & Crutcher LLP

Hogan Lovells

M. & M. Bomchil

MidMarket Capital Advisors

Norton Rose Fulbright LLP

Olaniwun Ajayi LP

Popovici Nitu & Asociatii

Travers Smith LLP

 


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