Global Third Quarter M&A At 3-Yr Low Over U.S.-China Trade War Worries

There has been a drop of 16 per cent year on year in the third quarter in the global mergers and acquisitions (M&A) activities. According to Refinitiv data this is the lowest level of such activity since 2016 because of increasing uncertainty in geopolitical and economic circumstances which had reduced the intention of companies to go for deals.

M&S activity had been severely impacted by the ongoing trade war between the United States and China which does not currently present any hope for of getting resolved in the short term. The trade war has also impacted global financial markets and slowed global trade which has further reduced appetite for firms to engage in expansion related deals. The M&A activities remained subdued even though the cost of debt financing for such deals became cheaper during the period and there was strength in the equity markets.

“M&A volumes have dissipated because there are concerns that risks may be rising in several spots, in markets and elsewhere,” said Michael Carr, global co-head of M&A at Goldman Sachs Group Inc GS.N.

One of the markets that was most hit by the reduction in volume of M&S activities was the US where there was almost no rise in consumer spending in the summer coupled with subdued business investment while the clouds of the trade war with China hung overhead. The <M&S activity in the US dropped by almost 40 per cent year on year in the third quarter which is the lowest in terms of volume since 2014.

Figures for the Asian market were also not encouraging as investors and companies there remained concerned about the fate of the financial hum of Hong Kong that has been hit for more than four months now with pro-democracy protests. There was a 20 per cent year on year drop in M&A activity in the region to touch $160 billion which was the lowest since 2017.

There was often a gap between the buyer and seller in terms of valuation expectations which proved difficult to eliminate, said dealmakers. This resulted in some deal not maturing.

“Companies looking at deals have become more risk-averse, and this is likely to bring M&A volumes down for the year. But we expect M&A activity to be strong going into next year,” said Robin Rankin, global co-head of mergers and acquisitions at Credit Suisse Group AG.

Europe was the only bright spot as a region in the quarter in terms of M&S activities as it recorded a 49 per cent year on year increase in M&A volumes for the period to touch $249 billion.

“In Europe we have seen a real mix of different kind of deals which were spread across various sectors and geographies,” said Eamon Brabazon, co-head of EMEA M&A at Bank of America Corp.

“This is a sign of a healthy market because we’re not relying only on a particular strand. There’s no obvious reason to believe the M&A market will turn south in the foreseeable future,” he added.

(Adapted from Nasdaq.com)

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