Inbound deal activity by foreign buyers seeking US assets is rising quickly, said Baker & McKenzie in the inaugural edition of its quarterly Cross-Border M&A Index report
In 2015, up to Q3, deal value has hit at $344.5 billion, nearing 2014’s full-year post-crisis record of $380 billion.
“If the upward trend continues, it’s likely that 2015 will become the biggest year for US inbound deals since the heady days of 2007,” the law firm added.
The interest to acquire in the US market has levelled up in key Asian markets, as China, Japan and India become among the top ten acquirers in the US.
Japan maintained its position as the third most active buyer of US targets so far this year, taking the lead among the three Asian nations, with 53 deals totalling $29.5 billion.
In particular, Japanese buyers have been active in the US insurance market, pursuing overseas acquisitions as a strategy to compensate for low growth at home.
In July, Japan’s Meiji Yasuda Life Insurance acquired US-based StanCorp Financial Group for $4.9 billion.
China is the fourth-largest buyer in the US market, up from the sixth last year.
This includes Tsinghua Unisplendour’s $3.8 billion bid for a 15 per cent stake in Western Digital, which if approved would become the single largest Chinese investment in a US company to date.
As for India, the South Asian country became the 10th most active acquirers in the US market for 2015, with 16 transactions valued at $1.7 billion.
Baker & McKenzie noted that the majority of those deals have been in the life science sector, with six transactions totalling $1.5 billion, as Indian companies seek to increase their scale in the US generics market.
Global head of Baker & McKenzie’s India Practice, Ashok Lalwani believes that Indian companies will continue its acquisition spree, particularly in the pharmaceutical sector.
“I think this trend will continue in the near term given the low valuation and the need for Indian companies to increase their scale to compete in the increasingly competitive generic markets, as well to dip their toes into the innovator side of the business,” he said.
He noted that most of the acquisitions are funded internally as Indian companies are generally cash rich. “On the other hand, we are also seeing an uptick in Indian pharmaceutical companies tapping into the debt market for acquisition funding, as money continues to be relatively cheap right now,” Lalwani said.
Given that the technology sector is seeing a lot of rapid innovation and fierce competition, it is unlikely that deal activity will slow in 2016, Baker & McKenzie opined.
US technology deal activity remains robust, continuing the enthusiasm from 2014. In the first nine months of 2015, the market has seen 292 transactions done, comprised of 179 outbound and 113 inbound deals.
US tech buyers made the bulk of those cross-border acquisitions in Europe (82 deals), followed by targets in Asia-Pacific (35 deals).
Buyers from the EU were the most active players in the US tech sector, accounting for 47 inbound deals.
“Strategic acquisitions are often the quickest, most expedient way technology companies can acquire new technologies, products and service offerings, as well as high-performing talent. In the quest for innovation, it appears US tech executives are also becoming more comfortable with cross-border acquisitions,” it commented.
M&A partner Matthew Gemello said there has been a general easing of concern about managing talent and assets located out of eyeshot or the big tech companies in Silicon Valley.
“Our technology clients recognize that they have to go beyond domestic deals to find the game-changers for their businesses.”
Global trends to watch
Among the key trends to pay attention to, stems from India, as the country is expected to secure more cross-border M&A deals.
Beyond 2015, India could become the new sweetheart for US dealmakers, Baker & McKenzie said, much like China was three to four years ago. This is buoyed by the Indian government’s efforts to continue pursuing reforms to open the economy to foreign investors.
“There is optimism and people are moving into India for that reason,” Global head of M&A Michael DeFranco commented.
To the further Eastern end of Asia, China’s slowdown is expected to continue.
In the past year, US outbound activity into China has cooled, with China dropping out of the top ten destinations for US investment.
Both the number of deals and value of deals by US buyers in China is down significantly from prior years, the multinational law firm pointed out.
“The economic slowdown in China has given US multinationals the opportunity to pause and evaluate their China expansion strategy without having to feel like they are losing ground to their competitors,” Baker & McKenzie M&A Partner Matthew Gemello says.
It also noted that although global cross-border M&A shows few signs of slowing, risks still exist that could disrupt market activity, such as changes in the macroeconomy.
DeFranco added: “If the US Federal Reserve raises interest rates faster than expected or China’s slowdown is greater than anticipated, it could create uncertainty that gives dealmakers pause.”
In addition, deals with European countries could slow if the UK decides to leave the EU or Greece exits the Eurozone.