Asia Pacific (APAC) businesses emerged as active acquirers with deals worth $31.1 billion in the financial services sector alone. Nearly half of all outbound APAC deal volume targeted EU-based firms, with a total value of $26.7 billion.
Meanwhile, cross-border M&A in the global healthcare sector achieved a capitalisation of $159.7 billion in the last nine months on the back of 334 deals, putting the sector on track to reach 2014’s high of $259.7 billion, with the US emerging a the most frequently targeted geography. The US accounted for 59 per cent of all dealmaking by value, while China and India represent robust emerging market opportunities.
This was revealed in Baker & McKenzie’s inaugural edition of its quarterly Cross-Border M&A Index.The report added that Global transaction activity is on track to have a record twelve months, with cross-border M&A deals enjoying a strong year.
Providing data and insights into this trend, overall deal activity in the year-to-date is already at $2.91 trillion, a significant increase over 2014.
Cross-border transactions have so far totalled $1.05 trillion on course to match the 2014 figure of $1.42 trillion.
Cross-border activity in Q3 2015 was up by 10 per cent in terms of deal value compared to the same period in 2014, at $375 billion across 1230 deals. This growth in total deal value reflects a 10 per cent increase in the value of mega deals exceeding $5 billion, despite a 16 per cent decrease in overall deal volume.
The Cross-Border M&A Index, which analyses the number, size and complexity of the cross-border deals and includes six years of historical data, stands at 231 for Q3 2015, down from a peak in Q2 2014 of 285.
However, this is above the lowest quarterly figure of 119 for Q1 2010, with the index remaining above 200 since Q1 2014.
Michael DeFranco, the global head of M&A at Baker & McKenzie, commented: “Improving economic indicators in the US, easing concerns in the EU and emerging opportunities in Asia Pacific should continue to spur cross-border activity, particularly so-called ‘mega deals.”
DeFranco added, “We have seen a step-change philosophy in our clients, who are increasingly comfortable pursuing mid-market to mega deals implicating multiple jurisdictions as they look to develop sustainable competitive differentiators cross-geography.”
DeFranco noted that while near-term pending actions by financial regulators and growth uncertainty in emerging markets may contribute to some inhibited activity, Baker & McKenzie retains optimism regarding medium-term cross-border deal activity will continue at current levels.
Global outlook & APAC trends
In Q3 2015, the most active country globally for both outbound and inbound deals was the US, with 275 deals valued at $61.7 billion and 192 deals valued at $180.9 billion, respectively.
Other particularly active countries for outbound M&A in Q3 were the UK and Germany, with 109 and 75 deals valued at $23.1 billion and $31.9 billion, respectively.
In terms of inbound M&A, the UK and Australia also saw the most activity by value, with 142 and 38 deals worth $36.7 billion and $12.7 billion, respectively. Deal activity from one region to another was worth a total of $309.8 billion in the third quarter, representing 87 per cent and 31 per cent increases sequentially and year-over-year, respectively.
However, deal flow volume involving European firms was muted, decreasing due to elevated economic and political uncertainties this quarter and impacted by issues in earlier quarters.
On a value basis, financial services sector saw the most cross-border activity in Q3, with 102 deals valued $95.6 billion. On a volume basis, the industrials sector was the most active, with 200 deals valued at $17.9 billion.
The three largest cross-border deals for Q3 2015 quarter globally were Teva Pharmaceutical’s $40.5-billion acquisition of Allergan‘s generics business, ACE Limited’s $28.3-billion acquisition of The Chubb Corporation and Altice’s $16.6-billion deal for Cablevision Systems Corporation.
Asia Pacific (APAC) buyers were notable contributors to the US market this year, with APAC businesses emerging as active acquirers who pursued deals totalling $31.1 billion in the financial services sector alone. Nearly half of all outbound APAC deal volume targeted EU-based firms, with a total value of $26.7 billion, while more than a third of tat volume targeted North American corporations, with a total value of $28.5 billion.
In addition, APAC acquirers demonstrated a strong appetite for and confidence in Latin American assets, with 11 deals in Q3 2015 and 30 deals in Latin America year-to-date, an increase from the 22 deals conducted in 2014. The APAC markets also emerged as a popular target, with 92 deals totalling $25.4 billion in Q3, with North American bidders accounting for 55 per cent of inbound transaction volume, while EU bidders comprised 38 per cent of the total.
China, Japan and India were ranked amongst the top ten acquirers in the US market, with China now the fourth-largest buyer in the US market. This includes Tsinghua Unisplendour’s $3.8 billion bid for a 15 per cent stake in Western Digital. If approved, it would be the single largest Chinese investment in a U.S. company to date.
Commenting on this development, Matthew Gemello, a Baker & McKenzie M&A partner explained: “U.S. companies are looking for access to customers, industries and new markets, particularly as they aim to compete in highly dynamic industries.
Gemello added, “We have a relatively strong dollar that is making these acquisitions economically more feasible, and there is optimism in the U.S. economy, which is making dealmaking more attractive even in industries where we traditionally have seen more risk aversion by the part of overseas buyers.”
Healthcare sectors spotlight
Cross-border M&A in the global healthcare sector achieve a capitalisation of $159.7 billion in the last nine months on the back of 334 deals, putting the sector on track to reach 2014’s high of $259.7 billion, with the US emerging a the most frequently targeted geography. The US accounted for 59 per cent of all dealmaking by value, while China and India represent robust emerging market opportunities.
In contrast to previous years where the UK and Ireland saw prominent inbound activity, the two countries combined have accounted for 42% of all outbound bidding activity so far in 2015 at $45.6 billion and $22.0 billion, respectively.
Jane Hobson, global head of the Healthcare Practice Group at Baker & McKenzie, explained: “Within pharmaceuticals globally, companies are looking to effectively manage portfolios and replace many products that have gone off-patent within recent years.
She added, “We have also seen a great deal of activity in the generics space, an industry with business models different to innovators with more of a focus on managing margins at high volumes, in which creating critical mass through acquisitions has strategic appeal.”
Tracy Wut, the co-head of Baker & McKenzie’s Healthcare Industry Group in China and Hong Kong, works closely with healthcare companies in China and is seeing other trends emerging in healthcare.
Wut says, “Chinese corporates are interested in the technology but also manufacturing. In general, Chinese players are still more interested in marketed products that they will be able to sell using their own networks in China.”
In emerging markets and in China, in particular, hospital and clinic deals (both M&A and greenfield projects) will continue to be areas that generate a lot of interest, both domestic and foreign. “This trend will continue, particularly after the healthcare reforms since 2009, and given the need to upgrade the hospitals and services, and further relaxation in foreign equity restriction in this area,” explained Wut.