With global M&A passing the $5trn mark in 2015, we ask the City’s leading corporate players if last year’s deal boom will carry on through 2016
WALKING THE TALK
‘We expect to see a resurgence in cross-border activity, which we saw in 2015 to a great extent. It’s always a question of whether or not the mega-deals will continue and the middle market typically follows. Some industry sectors we expect to be active like 2015, such as life sciences and energy. Disruption in the market these past few weeks has not gone unnoticed, but going into the year, there’s lots of activity and people talking.’
David Gibbons, global head of corporate, Hogan Lovells
WAITING IN THE WINGS
‘IPOs [initial public offerings] are less attractive at the moment, with the capital markets suffering, so prices could come down for good assets. There has been a lot of private equity money chasing deals in 2015 so this liquidity, combined with the slowing growth in China and the decline in commodity prices, may force some more realism into M&A pricing. This could be positive for private equity and may result in it accounting for a larger percentage of European M&A in 2016. There were a string of mega corporate deals last year and that is also good news for private equity, as those types of strategic transactions often result in restructurings and disposals.’
David Walker, private equity co-chair, Latham & Watkins
BEST OF BRITISH
‘2015 saw a growing confidence in the boardroom when it came to acquisitions. The big question is whether that will continue. Stock markets did not start 2016 well and equity as an acquisition currency has taken a hit. In principle, however, the UK market has lots of reasons to be busy. There is a divergence in global economic growth and the UK offers attractive prospects. US acquirers are likely to come knocking, especially with other markets being a more risky play. However, there are some potential headwinds here. The Brexit vote, which may happen in early summer, and possible interest rate rises could cause a period of stagnation.’
Mark Rawlinson, partner, Freshfields Bruckhaus Deringer
FOLLOW THE BEARS
‘Most people you talk to have been uneasy about a price bubble for a while. Losers in auctions are scratching their heads at how the winner got to the multiple it did. If the bears are correct, then even if the current low-interest rate environment continues, we are going to have an M&A environment that looks more like 2010 than 2015 in the not too distant future.’
Luke Powell, partner, Macfarlanes
ALL EQUITY
‘Volume will reduce slightly, but value will reduce materially in 2016. There will be an M&A headwind due to the constraints on financing. People were getting US financing to do European M&A, but that’s becoming more difficult and the high-yield market is materially down. European banks can’t make up the gap, so it’s likely there will be an increased emphasis on mid-market deals that require equity investment rather than equity and debt. The big-ticket deals of the last few years will become rarer, so those running on traditional cycles will feel a chill, but there are still a raft of opportunities for entrepreneurial advisers.’
Ian Bagshaw, co-head of private equity, White & Case
BURSTING THE BUBBLE
‘The slowing growth in China and the decline in commodity prices may force some more realism into M&A pricing.’
David Walker, Latham & Watkins
‘2015 saw a consolidation of the M&A market moving from a buyers’ market to a sellers’ market. Funds and funds providers have very material levels of cash to deploy and, therefore, deal funding has not been an issue. The market is also seeing a trend towards covenant lite financing resembling the conditions available at the highest point of the M&A market back in 2006. One of the results of all of this has been a surge in the valuation of companies and assets. The question now is will this bubble last or will the Chinese slowdown, the downfall in oil prices or political instability take prices and M&A back to a more normalised level? Market conditions should slow down activity and reduce prices, but with the inertia and amount of cash available, we may face a continuation of the bubble.’
Juan Picón, Europe and Middle East managing director, DLA Piper
RECORD BREAKERS
‘2016 will be an active year, but I doubt it will be up on last year. There’s a lot of cheap debt around, and corporates have strategies these days to buy and build. You might find that more defensive strategies will come to the fore. In terms of industries, there could be consolidation in the convenience store sector, some in retail, and technology and healthcare will remain hot. The private equity market will remain strong.’
David Patient, managing partner, Travers Smith
CONFIDENCE IS A PREFERENCE
‘Deals happen during periods of business confidence and so far in 2016 global capital markets have indicated anything but confidence. Once we get beyond these short-term jitters, the underlying market confidence should provide the basis for broad deal activity in North America and Europe. Cross-border activity should continue at high levels. Healthcare, particularly biopharma, will remain active, while we will also see a high level of activity in a myriad of sectors, including energy, consumer and retail, tech and industrials. Financial institutions will also continue to do deals, but they will likely be smaller.’
Francis Aquila, partner, Sullivan & Cromwell
WATCH THIS SPACE
‘TMT will continue to be strong. If oil prices continue to fall, we will see more activity in the energy sector on the back of increasing distress. The fintech space is one for us to watch as there is a real opportunity for deals to happen on the back of fast growth. However, deals in this area may not be for the same eye-watering amounts as some of the mega-deals last year.’
Andrew Ballheimer, co-head of global corporate, Allen & Overy