Despite a backdrop of continued political turbulence, cross-border dealmaking held steady in Q2 2017, driven by deal activity involving the EU, according to Baker McKenzie's Cross-Border M&A Index.
Buyers announced 1,368 cross-border deals worth US$345.8 billion, a 10% decrease in volume but only a 1% decrease in value compared to Q1 2017. As the EU gained relative stability in the wake of Brexit developments and elections in the region, it accounted for more than half of cross-border deal value and nearly half of cross-border deal volume in Q2 2017. Baker McKenzie's Cross-Border M&A Index, which tracks quarterly deal activity using a baseline score of 100, decreased to 233 for Q2 2017, down 4% from the prior quarter but up 15% from Q2 2016. In Q2 2017, cross-border M&A made up 36% and 47% of global deal volume and value, respectively.
"We continue to see an increase in deal value as companies are choosing to invest more money in a smaller number of handpicked deals," said Michael DeFranco, global head of M&A at Baker McKenzie. "While deal volume decreased in Q2 we are encouraged by the activity in the EU and the return of China to the deal table. As we head into the second half of 2017, we continue to believe M&A activity will pick up."
The leading bidders for cross-border deals into the EU were the US, China, and UAE, in addition to cross-regional deals from companies in the UK and Italy. Seven of the top ten most targeted countries in Q2 2017 were in the EU, compared to only four in Q1 2017.
Regions and Sectors
After accounting for only 17% of cross-regional deal value in Q1 2017, well below its 35% average since 2009, the EU rebounded in Q2 2017 accounting for 58% of cross-regional deal value in the quarter. In Q2 2017, the EU was targeted with 637 cross-border deals valued at US$195.2 billion. North America was the largest bidder into the EU with 177 deals valued at US$97.2 billion. Despite an upcoming election, Germany was the most targeted country in the EU by deal value and Praxair's (US) US$45.5 billion acquisition of Linde AG (Germany) was the highest valued cross-border deal of the quarter.
Following a challenging first quarter impacted by government legislation, Chinese investors returned to the deal table in Q2 2017 and were the second most acquisitive cross-border nation with 94 deals valued at US$35.9 billion. The largest outbound deal, from China and the Asia-Pacific region, was China Investment Corporation's (China) US$13.8 billion acquisition of LogiCor Europe Limited (UK). Japan continued its buying spree in Q2 2017, as it carried out 66 deals valued at US$18.6 billion, a 27% increase in deal value and a 5% increase in deal volume compared to Q1 2017.
North America was the most acquisitive region by deal value, announcing 364 deals valued at US$128.9 billion. The US was both the most acquisitive country, 284 deals valued at US$109.9 billion, and targeted country, 217 deals valued at US$72.5 billion, globally. The largest deal targeting North America was Clariant AG's (Switzerland) US$10.4 billion acquisition of Huntsman Corporation (US).
The chemicals and materials sector lead the way for deal value in Q2 2017 with 42 deals valued at US$60.4 billion, while the industrials sector lead the way for deal volume with 209 deals value at US$25.4 billion. Pharma and construction were the second and third highest sectors in terms of value, contributing US$40.2 billion and US$36.3 billion, respectively.
A Focus on Technology
In 2016, there were 787 cross-border deals in the technology sector, an increase of 33 on 2015 and a post-crisis record. Value also hit a post-crisis high of US$187.7 billion in 2016, a 78% increase over 2015.
While cross-border deal activity in the technology sector slowed slightly in the first half of 2017, down 0.7% in volume and 17% in value year-over-year, the volume of deals was higher than all other half-year periods, except for the first half of 2016, and deal value was higher than all half-year periods between 2009 and 2014. The US has been the most targeted and acquisitive country over the past two years.
“There will definitely be more moonshots given the cash the major tech players have,” said Matthew Gemello, head of Baker McKenzie's North American Corporate & Securities practice. “It wouldn’t be surprising if another major tech player buys into an industry that is not on anyone's radar screen.&rdquo