After a rocky 2016 with Brexit and Trump, we ask the City’s leading corporate players how 2017 will play out.
THREE FRONTS
‘The unpredictable climate looks set to continue, with significant uncertainties in at least three key M&A markets. President Trump has committed to sweeping action, from tax liberalisation, to deregulation, to trade policy, but details are few so the impact on US M&A is unclear. The China outbound M&A spree of 2016 has already been stemmed by November’s announcement of controls on capital outflows and the increasingly protectionist stance of global regulators; Brexit negotiations and French, German and Dutch elections could also affect dealmaking in Europe.’
Guy Norman, global head of corporate, Clifford Chance
GREAT EXPECTATIONS
‘I end every year expecting the next to be even better and am then slightly disappointed when the deals don’t flow in on 2 January. However, this year, despite tough market conditions, we are seeing more activity than the same time last year and probably more than we could have expected. I don’t see any dramatic changes in the market, so I expect prices to remain high, for there to be few quality assets available and for hot auctions to be extremely competitive. Private equity funds have a lot of dry powder to deploy and banks are open for business, so there will be deals to do.’
David Walker, global co-chair private equity, Latham & Watkins
MIDFIELD BATTLE
‘Mid-market M&A has held up well. No doubt volatility in the markets and uncertainty in the economy are holding back some activity, but wider issues of geopolitical risk seem oddly distant. Private equity houses are sitting on cash and are keen to transact. While interest rates may rise in the US, many commentators do not expect the UK or Europe to follow. Coupled with plenty of depth in the alternative credit market, the outlook for sponsor-led activity is good.’
Charles Martin, senior partner, Macfarlanes
GUT FEELING
‘My hunch is that global M&A activity will accelerate during 2017 as companies and investors decide that whatever politicians may think, the world will continue to be more global, their competitors will not stand still and neither should they. There will be an increased nervousness about standing on the sidelines. The M&A cycle has further to run.
‘M&A in continental Europe will increase. The US will both be a favoured destination for cross-border flows and a strong exporter of M&A. Activism in the UK will be more present than ever. Japanese and Chinese clients will continue to be active international buyers, despite recent wobbles in relation to China. Technological disruption across all industries will accelerate and will impact heavily on corporate strategy and activity.’
Simon Marchant, London corporate head, Freshfields Bruckhaus Deringer
OVERBOARD
‘Dealmaking has slowed and, in the current climate, boards need some convincing that now is the time for big M&A. No board wants to announce an acquisition and then see that the figures no longer stack up because asset values have collapsed. I don’t see 2017 as being a strong period for global M&A, but I do expect the anxieties to ease towards the back end of the year as companies learn to live with uncertainty and realise that deferring investment will leave them outflanked by nimble competitors.’
Andy Ryde, head of corporate, Slaughter and May
‘No board wants to announce an acquisition and then see the figures no longer stack up.’
Andy Ryde, Slaughter and May
EYE OF THE TIGER
‘No-one knew what to expect post-Brexit. But in the last six months the market seems to have weathered whatever has been thrown at it – remarkable resilience of which even Rocky would have been proud. There are a few dark clouds on the horizon and, of course, a potential downpour in 2019, but a number of the key ingredients to an active M&A market remain in place.’
Paul Dolman, head of private equity, Travers Smith
NOTHING IS CERTAIN
‘While we had expected an uptick in the market, we were surprised by the extent of M&A activity. The nagging question is, at what point will the current cycle turn? As ever, that is very difficult to predict with any certainty. We expect to see continued activity in the tech and life sciences/pharma space. There also appear to be signs of recovery in the commodities markets, which may lead to activity in the resources area.’
Dominic Morris, head of London corporate, Allen & Overy
EARLY PROMISE
‘The M&A market is in a better place than any of us might have hoped it would be post-Brexit. There are a lot of people looking at potential transactions. How successful people are in converting those deals will be the challenge. There is clearly a level of nervousness driven by political events in the UK and US. An encouraging sign is the early-stage deals we are looking at are across a range of sectors – they aren’t all following a trend from a mega deal. There is a broad spectrum. Quite a lot is being driven by overseas buyers looking into the UK.’
Nick Rumsby, corporate and M&A partner, Linklaters
AMERICAN PIE
‘In Europe and the UK in particular, the Brexit effect is hard to predict, but it has created opportunities, not least as a result of the fall in sterling. That is likely to continue. The elections in France and Germany may cause some pause for thought. The wave of outbound M&A from China may subside marginally on the back of more stringent outbound investment approvals signalled by the authorities. However, the major player in M&A will remain the US. It will be interesting to see whether the new administration facilitates the repatriation by US corporates of the billions of dollars of foreign income held by them outside the US and the potential use of those funds on M&A in sectors such as pharma, energy and TMT.’
Stephen Wilkinson, global head of M&A, Herbert Smith Freehills