Of all the ways to describe how mergers and acquisitions (M&As) kicked off in 2017, ‘exceptional’ is not one. Global M&As had a mixed first quarter with a dip in the number of deals but a rise in the overall value of deal activity, according to a Mergermarket report. While the total number of deals fell 17.9% compared with the first quarter of 2016, overall deal value was up 8.9% to $678.5 billion. In the first quarter of 2015, deal value was $760.1 billion, the highest since 2008.
Spike in consumer sector deal-making
While the volume of deal-making dipped, one dynamic that played out was that the average deal value rose and one saw the return of mega deals, as in 2015. This comes after a gap of one year as 2016 largely focused on mid-market activity. Due to ongoing uncertainty regarding upcoming European elections, transactions will be viewed as more precious, with larger sums being invested in fewer deals, said the report. This is reflected in the average size of disclosed value deals at $403.4 million, the highest Q1 level in Mergermarket records (since 2001) due to nine recorded mega deals, up from eight in Q1 2016.
A standout trend, however, has been the number of consumer mega deals announced, with a record three deals valued over $10 billion resulting in the sector deal value (395 deals, $136.1 billion) reaching its highest value in Q1 since 2008 (497 deals, $180.2 billion). This rebound in activity follows on from a slow 2016, where just one mega deal was announced: Danone SA’s acquisition of WhiteWave Foods Co. Big consumer deals were seen in Q1 2017, such as British American Tobacco Plc.’s bid to buy a stake in Reynolds American Inc. for $60.8 billion to create the world’s largest publicly traded tobacco business; French lensmaker Essilor International SA buying Luxottica Group SpA, the maker of Ray-Ban sunglasses, for about $25.4 billion in stock; and Reckitt Benckiser Group Plc. buying Mead Johnson Nutrition Co. for $17.8 billion. The spike in consumer deal-making caused Q1 value to account for 61.6% of total 2016 consumer activity (2,181 deals, $220.9 billion).
Asia focus: India pips China as Chinese buyers scale back
The Asia-Pacific region (excluding Japan) experienced a relatively slow start to the year compared with two strong years previously. There were 697 deals worth $124.8 billion announced during the first quarter, down 10.4% by value compared with Q1 2016 (817 deals, $139.3 billion).
The largest announcement of the quarter—Vodafone Group Plc.’s $12.7 billion sale of Vodafone India to Idea Cellular Ltd—saw two Indian firms join forces. The Vodafone deal bolstered Indian Q1 M&A value, with 76 deals worth $18 billion announced, standing 95.2% ahead of Q1 2016 (110 deals, $9.2 billion) by value, despite trailing by 34 deals.
A clampdown by the Chinese government on capital outflows in general and the acquisition of foreign targets specifically had a dampening effect, with outbound purchases by Chinese buyers dropping 86% (by value) compared with the same quarter last year. There were 75 Chinese outbound deals worth $11.8 billion announced in the first quarter of the year, a steep drop from both Q1 2016 (96 deals, $82 billion) and Q4 2016 (87 deals, $42.3 billion). This, coupled with increased protectionism from the US and UK, may signal the end of China’s outbound acquisition spree, at least in the short term, the report said.
Graphics by Ajay Negi/Mint