LONDON/NEW YORK: Global mergers and acquisitions (M&A) plunged 16% year-on-year to $729 billion in the third quarter, according to Refinitiv data, the lowest quarterly volume since 2016, as growing economic uncertainty curbed the risk appetite of companies considering deals.
Concerns that the trade war between the United States and China has plunged global economic growth to its lowest levels in a decade weighed on dealmaking, even as debt financing for acquisitions remained cheap and equity markets stayed robust.
“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.
The United States, where consumer spending barely rose in the summer and business investment remained subdued amid the trade tensions, was particularly hit. U.S. M&A sank 40% year-on-year to $246 billion in the third quarter, the lowest such quarterly level since 2014.
Asia, which has been hit by concerns over the future of Hong Kong as a financial hub following a wave of pro-democracy protests, fared only slightly better. M&A activity in the region dropped 20% year-to-year to $160 billion, the lowest level since 2017.
Dealmakers said a mismatch between buyer and seller valuation expectations often proved hard to bridge, with some deals failing to reach the finish line.
“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.
The only regional bright spot in the third quarter was Europe, where M&A activity reached $249 billion, up more than 45% over the same period last year.
“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.
Britain, where uncertainty over Brexit has turned companies into cheaper acquisition targets, remained Europe’s biggest M&A market with a 6.4% share of global M&A and $177 billion worth of deals so far this year.
Sterling’s near record lows against other major currencies encouraged overseas buyers to snap up “UK Plc”, with Hong Kong’s richest man Li Ka-shing swooping on pubs operator Greene King and buyout fund Blackstone leading a buyout for Madame Tussauds and Legoland owner Merlin.
A big attempted transaction in the third quarter was Hong Kong Exchanges and Clearing’s (HKEX) proposed $39 billion takeover approach to the London Stock Exchange Plc (LSE) . The latter has so far rejected HKEX’s overtures.
The biggest deal attempted in the quarter was Marlboro maker Philip Morris International Inc’s bid to reunite with Altria Group Inc, in what would have been the biggest corporate merger since 2016, creating a tobacco giant with a market value of more $200 billion. The deal was abandoned last week amid concerns about regulators cracking down on e-cigarettes and vaping products.
Among the big deals in the quarter that made it to the finish line and were sealed with merger agreements were the $24.6 billion merger of U.S. drug giant Pfizer Inc’s off-patent branded drugs business with Mylan NV, and U.S. media companies CBS Corp and Viacom Inc’s merger in a $20 billion all-stock deal.
As companies deliberate whether they should ink deals by the end of the year, dealmakers expect the M&A pipeline ahead to stay healthy, possibly matching last year’s annual volumes of $3.91 trillion in announced transactions.
“Management teams are watching very closely because shareholders expect companies to take advantage of these conditions to grow their business,” Goldman’s Carr said. – Reuters
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SYDNEY: The Australian dollar hovered near a one-month high on Friday while its New Zealand cousin held on to recent gains as positive U.S. data and some optimism on coming Sino-U.S. trade talks lured investors into risk assets.
Safe haven Australian and New Zealand sovereign bonds were heavily sold off, sending yields to multi-week highs across the curve.
The Australian dollar was at $0.6809 at 0154 GMT after breaching overnight key chart resistance of $0.6800 for the first time since Aug. 1.
For the weeks, the Aussie was up 1.1%. If that gain is sustained, the currency will have its best weekly performance since late June.
The New Zealand dollar held at $0.6376 after hitting a 1-1/2 week top of $0.6395 overnight. For the week, the kiwi is up nearly 1%, on track for its best week since early July.
Investors cheered news on Thursday that the United States and China have agreed to hold high-level talks early in October, raising hopes for substantial progress in de-escalating the long, bitter trade conflict between the two.
“Although investors have become increasingly doubtful about President Trump’s commitment to reaching a trade deal with China, any sign of even a temporary de-escalation is welcome by the markets in a deteriorating global economic environment,” Raffi Boyadjian, senior investment analyst at XM said in a client note.
Risk sentiment was further improved by upbeat U.S. private payrolls which increased at the fastest pace in four months in August.
Separate figures showed the U.S. services industry rebounded last month and had its fastest expansion since February.
Investors will have their eyes fixed on non-farm payrolls figures, due later on Friday, that are expected to show an increase of 158,000 and the unemployment rate steady at 3.7%.
Still, some expect market volatility and uncertainties to dominate sentiment for some time to come.
“With any trade resolution unlikely soon, the erratic markets of August may persist into October,” said Bob Baur, chief economist for Principal Global Investors in the United States.
“If that’s the case, U.S. Treasury yields could re-test the lows of 2012 and 2016. Beyond that, government bond yields are surely tracing out a trough that will hold into 2021.”
Already yields on government bonds around the world have slid sharply to multi-year or even record lows on expectations of easier monetary policy globally.
Treasury yields rose overnight, also helped by a wave of corporate debt supply. That together with a better tone on trade boosted antipodean yields.
In New Zealand, yields on government bonds gained 5-7 basis points on the long-end of the curve.
Australian government bond futures slipped to multi-week lows, sending yields higher. The three-year bond contract fell 6.5 ticks to 99.185 while the 10-year contract was off 9.5 ticks to 98.93. – Reuters
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