Cooling economy to push global M&A value lower over next two years

M&A transactions are expected to fall to $2.9tn in 2019, down from $3.1tn in 2018, study says

The Kingdom Tower in Riyadh, Saudi Arabia. Recovery in oil prices is expected to help boost M&A deal in the Middle East. AP

The cooling world economy will drive the value of merger and acquisition deals down in the next two years to below 2018 levels, a new study found.

The value of M&A transactions across the globe is expected to fall to $2.9 trillion (Dh10.64tn) in 2019, down from $3.1tn this year. It is excepted to decline further to $2.3tn in 2020, the fourth Global Transactions Forecast, released by consultancies Baker McKenzie and Oxford Economics, said.

With some major initial public offerings scheduled for 2019, total IPO proceeds are projected to reach $232 billion, higher than the $220bn achieved in 2018, but sliding to $154bn in 2020, according to the report.

However, in 2021 and beyond, with borrowing costs settling at their neutral rates and equity markets enjoying better growth, Baker McKenzie and Oxford Economics see potential for the start of a new upturn in both M&A and IPOs.

"We remain cautiously optimistic about the year ahead, as we believe deal-makers will continue to take the long view in a world where sitting on your hands and waiting for the volatility to die down is not an option,” Paul Rawlinson, global chair of Baker McKenzie, said in a statement on Thursday.

“However, as we identified 12 months ago, there are still real threats to free trade and investment flows and there remains potential for a much more serious outbreak of protectionism and isolation that business, regulators and government must try and guard against," he noted.

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Within the Middle East and Africa, a recovery in oil prices has helped the hydrocarbon-dependent economies through 2018, although the global oil market has become more volatile heading into 2019. The continued gradual progress towards more diversified economies should help build confidence and deal-making from 2019 onwards in the Middle East, while in Africa signs of financial and economic stability will do likewise, according to the report.

The value of announced mergers and acquisitions in the Middle East and North Africa more than doubled to $10bn in the third quarter from a year earlier, amid expectations of slower activity in 2019, consultancy EY said in a November report.

The GCC accounted for 79 per cent of the value of announced deals and 73 per cent of deal volume in Mena. The number of big ticket transactions grew to eight from two in the year-earlier period because of increased participation of sovereign wealth funds and activity in the oil, gas and petrochemicals sector.

The biggest deal during the quarter was Saudi Aramco’s $1.6bn acquisition of Arlanxeo, a chemicals company in the Netherlands, according to EY.

Overall, McKenzie and Oxford Economics expect another strong year in North America in 2019, particularly if trade talks become less contentious and partisan, but with lesser activity expected in the second half of next year.

With the Eurozone economy entering a cyclical slowdown, the report suggested a further reduction in deal activity in 2019.

“In selected European economies including Spain and the UK, the market has remained robust and prospects for 2019 look fair, especially if, and it's a big if, Brexit is managed relatively smoothly.”