Optimism returns to M&A market with 2018 the year of small and middle-sized deals, says new survey

BY Fraser Tennant

Optimism is returning to the M&A landscape with smaller and middle market deals expected to lead activity in 2018, according to a new survey from Dykema.

The survey – the law firm’s 13th annual M&A outlook – reveals that 39 percent of respondents expect the M&A market to strengthen over the next 12 months, up from 33 percent last year and 37 percent in 2015. Furthermore, 60 percent predict a strong US economy in the year to come – double the result of last year’s survey.

In terms of the US, 55 percent of respondents indicated an expectation that president Trump will be a positive force on both the US economy and M&A market in 2018. Among the factors playing a role in this optimistic sentiment are the expected reduction in corporate tax rates, more favourable business regulations and the Trump administration’s perceived business-friendly positive economic policies.

“With the uncertainty around the presidential election in the rearview, our survey respondents are abandoning the ‘wait and see’ mantra, with an increasing number predicting that deal activity is back on the rise,” said Thomas Vaughn, co-leader of Dykema’s M&A practice. “However, we are still hearing that uncertainty around the Trump administration’s priorities and regulations will have the greatest impact on M&A from a global perspective.”

Additional key findings include: (i) the majority of respondents (70 percent) expect the volume of small deals (under $50m) will increase over the next 12 months, with 53 percent predicting an uptick in deals valued between $50m and $100m; (ii) for the fourth consecutive year, respondents expect technology and healthcare to see the most M&A activity over the coming year; (iii) 59 percent of respondents predict an increase in M&A activity between FinTech startups and established financial services organisations in 2018; and (iv) 68 percent of respondents said they would be involved in an acquisition in the next 12 months, sentiment consistent with 2016’s 70 percent.

Survey respondents also stated their belief that the leading driver of cross-border deals in 2018 will be companies seeking growth via entrance into foreign markets. More companies in Asia are also expected to pursue deals in the US, and outbound M&A activity from the US to Mexico and Canada is expected to increase in the next year, despite ongoing public statements by the Trump administration around the renegotiation of the North American Fair Trade Act (NAFTA).

With a high level of optimism not seen across the M&A landscape for several years, bullish dealmakers are heading back to the negotiating table intent on pursuing strategic transactions.

Report: Mergers & Acquisitions Outlook Survey 2017

GIP makes $5bn renewables bet on Equis

BY Richard Summerfield

US investment fund Global Infrastructure Partners (GIP) and a number of partners, including Canada's Public Sector Pension Investment Board and the Chinese sovereign fund China Investment Corp, have agreed to acquire Equis Energy in a $5bn deal, including $1.3bn in debt. The deal is expected to close in the first quarter of 2018.

Equis is the largest renewable energy independent power producer operator in the Asia‐Pacific region, with over 180 assets in operation, construction and development across Australia, Japan, India, Indonesia, the Philippines and Thailand with a capacity in excess of 11 gigawatts.

The deal is the largest ever transaction in the renewable energy space, an industry which has begun to see increased activity in recent years. As governments, particularly in Asia, continue to seek out alternatives to fossil fuels to meet rising energy demand and combat pollution, the renewables industry will likely see increased dealmaking activity.

David Russell, chief executive of Equis and chairman of Equis Energy, said: “The investment by GIP and its partners is exciting news for the development of renewable energy in the Asia‐Pacific. GIP has a strong track record of managing and growing utility‐scale infrastructure businesses, and the combination of experience and knowledge across GIP and the existing management team will allow Equis Energy to continue expanding competitively across its target markets.”

Adebayo Ogunlesi, chairman and managing partner of GIP, said: “We are excited by the new investment in Equis Energy, which is a strong fit with GIP’s global renewable investment strategy. Equis Energy is a unique success story in the APAC region as it has systematically executed its growth strategy since its founding 5 years ago. In that period, Equis Energy has become one of the leading renewable energy platforms in the region, with a best‐in‐class business model, a high‐ quality asset portfolio and an outstanding management team. We look forward to continuing the Equis Energy success story in the years to come and to supporting new growth opportunities in one of the most promising renewable energy markets in the world.”

There was reportedly considerable interest in Equis. GIP and partners are believed to have beaten a number of rivals, including global pension funds and several buyout firms, in order to acquire the company.

News: U.S. fund, CIC snap up Equis Energy for $3.7 billion in bet on renewables

Global consulting sector M&A rises 1 percent in Q3 2017, reveals new report

BY Fraser Tennant

Mergers & acquisitions (M&A) activity in the global consulting sector in Q3 2017 rose 1 percent year-on-year (YoY), with large variations across market segments, according to a new report by Equiteq.

In ‘Q3 2017 Marketing Update – The Global Consulting M&A Report’, Equiteq notes that the media & marketing and management consulting segments experienced the strongest M&A activity during the quarter.  Elsewhere, despite notable deals occurring in human resources and IT services, deal activity fell in these segments. In engineering consulting, deal activity rose strongly in comparison with the previous quarter.

Among the report’s key findings: (i) there were 609 M&A deals in total in the consulting sector in Q3 2017; (ii) North America saw strong deal flow, with 288 deals (up 7 percent (YoY) and with a median deal size of $20m); (iii) Europe saw 228 deals (flat YoY and a median deal size of $7.5m); (iv) Asia-Pacific and Australia saw 63 deals (down 21 percent YoY and a median deal size of $3.5m). Furthermore, despite continuing tensions between the US and parts of Asia, cross-border deal flow fell only slightly compared to Q2 2017.

“We are seeing strong and accelerating activity across our global platform in North America, Europe and Asia,” said David Jorgenson, chief executive of Equiteq. “Current market conditions are favorable for owners of knowledge-led businesses who are investigating their strategic and liquidity opportunities.”

In addition, the report found that private equity activity continues to remain strong despite fierce competition and strong pricing from cash rich strategic buyers. Notable financial buyer investments in Q3 2017 included Apax Partners’ acquisition of ThoughtWorks and Vista Equity Partners’ acquisition of The Advisory Board Company’s education business.

The Boston Consulting Group’s acquisition of digital design and innovation consulting lab MAYA represented another high-profile example of a move by a leading management consulting firm to capitalise on the huge opportunity for providing advisory services around digital transformation initiatives. In terms of technology M&A, global professional services company Accenture continued to be the most acquisitive buyer, acquiring seven businesses, with notable deals in spaces like communications strategy, creative media, asset management consulting, agile software-development, cloud-based mobile, and big data and analytics.

Mr Jorgenson concluded: “We are experiencing strong deal flow across our global business, which has accelerated over the last two months. The current market conditions are favourable for sellers of sale ready consulting businesses.”

Report: Q3 2017 Marketing Update – The Global Consulting M&A Report

BASF sows seeds with $7bn Bayer deal

by Richard Summerfield

German chemicals giant Bayer is to sell parts of its crop science business to BASF for about $7bn, the companies have announced. The deal has been designed to assuage the concerns of the EU competition authority over Bayer’s planned $66bn acquisition of US agrochemical and agricultural biotechnology corporation Monsanto Company.

The deal will see BASF pay in cash for “significant parts” of Bayer’s seed and herbicide businesses. BASF is paying 15 times earnings before interest, taxes, depreciation and amortisation. BASF said the deal will be earnings per share accretive in the first year.

For BASF, the deal is a surprising one. To date, the company has avoided seed assets and instead pursued research into plant characteristics such as drought tolerance, which it sells or licences to seed developers. However, Bayer’s Monsanto acquisition has opened up opportunities for rival firms. Bayer has confirmed that proceeds from the seed unit sale will help finance the Monsanto acquisition.

“With this acquisition, we are seizing the opportunity to purchase highly attractive assets in key row crops and markets. We look forward to growing these innovative and profitable businesses and to welcoming the experienced and dedicated team in crop protection, seeds and traits. These businesses are an excellent match for BASF Group’s portfolio,” said Dr Kurt Bock, chairman of the board of executive directors of BASF SE, in a statement.

“I am very pleased that, in BASF, Bayer has selected an acquirer that, like our company, attaches a great deal of importance to social partnership and values its employees. I welcome the fact that BASF has committed to offering comparable employment conditions for our colleagues,” said Oliver Zühlke, chairman of the Bayer Central Works Council.

In August, the European Commission opened an investigation to assess the proposed acquisition of Monsanto by Bayer under the EU Merger Regulation. Bayer had offered to sell assets worth around $2.5 bn. The European Commission said in August that the divestments offered by Bayer so far did not go far enough and opened an in-depth review of the deal.

News: BASF to buy Bayer units for $7bn

European M&A dealmakers in positive mood, claims new survey

BY Fraser Tennant

Dealmaking sentiment for the year ahead across the European M&A market is positive despite the ongoing impact of last year’s Brexit vote, according to a new report by CMS in association with Mergermarket.

The report, ‘Changing tides: European M&A Outlook 2017’, which canvassed the opinions of 230 Europe-based executives from corporates and private equity firms, found that 67 percent expect European M&A activity levels to increase over the next 12 months while 5 percent anticipate a slowdown.

In comparison, last year’s survey, which was conducted shortly after the Brexit vote, was met with a subdued response from dealmakers as to upcoming European M&A, with 66 percent expecting activity to decrease over the forthcoming year and 24 percent anticipating an increase.

That said, M&A in Europe has been showing signs of stabilisation this year, with Mergermarket data revealing that M&A deals in H1 2017 sharply increased in value compared to the same period in 2016, rising 33 percent to €443bn.

“The mood among deal makers is markedly different in 2017,” confirms Stefan Brunnschweiler, head of the corporate/M&A practice group at CMS. “While acknowledging some of the challenges they face, respondents are largely optimistic about deal making prospects for the coming year, with many suggesting they are ready to take advantage of opportunities stemming from dislocations that result from Brexit and from a return to economic growth in the eurozone.”

In addition, survey respondents indicated that European financing conditions are currently favourable and that this will drive large, transformational deals over the next 12 months. Indeed, 88 percent expect similar or more favourable financing conditions over the coming year. Furthermore, 66 percent of survey respondents expect to engage in M&A, including acquisitions, divestments or both.

The report also notes that overseas buyers have been setting their sights on the European market, with four of the top 10 European deals in H1 2017 led by bidders located outside the EU – a trend that 90 percent of executives believe will continue.

“European M&A in the first half of 2017 shows positive signs of recovery, with momentum gathering as we move through the year," said Kathleen Van Aerden, head of research EMEA at Mergermarket. “The €246bn total value recorded in Q2 2017 was up 25 percent on the previous quarter and was higher than any quarter in 2016.”

A market newly refreshed with confidence, dealmakers are currently adapting to a new normal in European M&A activity.

Report: Changing tides: European M&A Outlook 2017