Asia Pacific, while not as acquisitive with a total of 188 deals, emerged the biggest spender among regions clocking in $50.5 billion worth of cross-border deals in the second quarter (Q2) of 2016, Baker & McKenzie said in a report.
Investors from the region mainly targeted the EU, spending $29 billion across 96 deals.
Within the region, Chinese bidders remain the driver of deals, a trend already identified in the Q1 2016 Baker & McKenzie Index, and stayed a key highlight in Q2.
China’s 97 outbound deals in Q2 were worth $40.7 billion, which is 23 per cent and 132 per cent higher than the same period in 2015.
The focus was on investments in technology (15 deals worth $17 billion) and industrials (17 deals worth $4.8 billion), as part of the country’s ongoing efforts to move up the value chain, Baker & McKenzie noted in its report.
There is also renewed interest in mining among the Chinese, depicted in four deals done worth $4.4 billion.
Chinese buyers shifted their attention to the EU for targets, with 43 deals compared with 23 in wider Asia Pacific and 19 in North America.
The largest of these included Chinese industrial products and services company Midea Group’s takeover offer for German-listed KUKA, an industrial automation company worth $4.3 billion, as well as private equity firms JAC Capital Management and Wise Road Capital Management’s acquisition of Dutch-based NXP Semiconductors’ Standard Products unit for $2.8 billion.
Michael DeFranco, chair of Baker & McKenzie’s Global M&A Practice, commented that Chinese buying activity continues to shine in this turbulent market.
“I suspect that Chinese outbound M&A will be a driving factor for M&A in the year ahead and be a key part of global transactional activity,” he added.
The growing importance of Chinese outbound M&A is highlighted by the fact that while in Q2 2011 Chinese M&A accounted for only 1.1 per cent of the global total, in this most recent quarter this proportion had risen to 6 per cent.
Japan ranks second among the Asia Pacific countries in terms of both volume and value on outbound M&A, while Hong Kong came in third.
While EU was the main target for Chinese buyers, US ranks high as a target country by both deal value and volume in Asia Pacific. Looking at sectors, consumer and Industrial sectors saw the most M&A activities.
Dip in global performance
In the global arena, there were 1,320 cross-border deals worth $214 billion announced in Q2, a 4 per cent drop in volume and a 45 per cent drop in value compared to Q2 2015.
The total value of cross-border megadeals – those above $5 billion in value – fell significantly in the first half of the year.
While there were 21 megadeals struck in the first half of 2015 with a total value of $296 billion, the 18 thus far in 2016 are worth 23 per cent less at $228 billion, and only three of those occurred in Q2 2016. The three megadeals in Q2 were worth $29 billion in total.
“After a record year in 2015, there’s no question that Brexit, political uncertainty in the US and elsewhere, a subdued macroeconomic environment globally and other factors have weighed on deal makers’ confidence,” DeFranco commented.
He added: “Even with this though, we continue to see high volumes of deals, just fewer of the mega transactions, and many multinationals are continuing to make acquisitions in support of their long-term strategies.”
Globally, Baker & McKenzie’s Cross-Border M&A Index showed that North America was the largest cross-regional outbound market by volume, with 263 outbound deals worth $38.5 billion and 67 per cent of those targeting the EU.
There were some noteworthy activity in the Middle East during the first half of 2016, as inbound cross-border deals targeting the Middle East remained steady following a record H1 2015, hitting $5.6 billion from 20 deals.
Outbound deals set a new record in 2015, with $32.9 billion on the back of 83 deals – the highest value of any year covered by the index since 2009.
In terms of sectors, industrials led with 199 deals, technology saw 182 deals and business services 172 deals for Q2.
Cross-border M&A in the mining sector remained stable for the first half of 2016 with 38 deals worth $8.1 billion, despite concerns about weak commodity prices.
Although volume is down slightly on H1 2015, during which there were 40 deals worth $7.1 billion values have shown improvement, and the sector remains on track for another solid year.
With China driving activity, Asia Pacific generally is a key engine of the cross-border M&A market. Over the past 18 months, a total of 55 cross-border mining deals worth $14.5 billion were carried out by Asia Pacific based bidders. This represents almost 70 per cent of the value of deals in the sector. Much of the activity has been intra-regional (30 deals worth $5.7 billion), as well as sizable targeting assets in Africa, North America and Brazil.
“The fact that the mining market may have hit bottom (or is perceived to have little further to fall) is attracting investors from across the spectrum – and suggests that now may be an opportune moment to make a move,” Richard Blunt, Partner in Baker & McKenzie’s Corporate department in London and a member of the Energy, Mining and Infrastructure industry team, said.