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Dealmakers Positive on Global M&A Despite Protectionism, Says Brunswick Cross-Border M&A Survey

Ease of Financing and Regional Policies Buoy Outlook Political Climate and Reputation of Companies Considered Key Factors China and U.S. Seen as Drivers of Outbound Activity.

Leading dealmakers are optimistic that softness in cross-border M&A will soon reverse. Citing cheap financing and access to cash, as well as regional policies including China’s Belt and Road initiative and U.S. tax reform, a majority of deal advisors expect an uptick in cross-border M&A levels in the next twelve months, according to Brunswick’s Survey for XBMA, the Symposium on Cross-Border M&A.

The survey polled more than 100 M&A lawyers, bankers and advisors across North America, Europe and Asia. Results were released ahead of the sixth annual XBMA Symposium hosted by Stanford Law School and organized by the International Institute for the Study of Cross-Border Investment and M&A (XBMA). The XBMA hosts annual meetings to address strategic and tactical issues related to international cross-border mergers, acquisitions and strategic investments, which are attended by a globally diverse set of senior executives, academics and advisors. This year’s program focuses on technology-related M&A.

"Despite all the rhetoric against globalization, our study shows that there is cautious optimism for cross-border M&A," said Tim Payne, Senior Partner and Head of Asia, Brunswick Group. "Dealmakers expect China and the U.S. to lead outbound acquisitions in the year ahead, but at the same time are worried about regulatory constraints and geopolitical factors. The study also shows that reputation has a material impact on deal making, from the offer price, to getting shareholder and regulatory approval, to post-merger integration.”

Notable Highlights from 2017 Cross-Border M&A Survey

Globalization Is Not Dead: Dealmakers are positive about the prospects for cross-border M&A in the year ahead, challenging the notion that globalization is on the wane. Despite a 7% decline in global cross-border M&A in the first three quarters of 2017, according to Dealogic, 58% of participants anticipate an increase in the number of cross-border deals in the next twelve months, while a further 31% expect the same number as last year. More participants expect there to be an increase in cross-border M&A deals than in the number of deals more generally (51%).

China and U.S. Driving Cross-Border Activity: Despite an increasing trend towards protectionism, many expect China (37%) and the U.S. (36%) to be the most active countries making outbound acquisitions. Europe, excluding the UK, follows at 19%. This is also in spite of a 46% decline in Chinese outbound investment in the first half of 2017, according to Bloomberg, caused by government capital controls implemented last December aimed to curb “irrational” outbound M&A.

Drivers are Region-Specific: Dealmakers expect an uptick in cross-border M&A, largely driven by availability of capital, but the catalysts expected to have the greatest positive impact on deal flow are region-specific. While respondents saw financial considerations such as cheap debt financing (70%) and excess cash on the balance sheet (58%) as key factors globally, drivers then diverged dramatically among regions. In Asia, 68% of participants viewed China’s “Belt and Road” initiative as having the greatest positive impact on deals, while in the U.S., 50% saw tax policy as the most important driver. Shareholder activism was a key factor in Europe (33%).

Political Climate Affecting Deal Execution: While advisors are bullish on future crossborder M&A, they identified a number of factors that will complicate getting deals done. Aside from the limitations on outbound investment from China (52% cite this as a significant barrier to cross-border M&A), geopolitical risk such as Brexit and North Korea, and current administration and CFIUS in the U.S. are cited as other predominant barriers (cited by 51% and 44%, respectively).

Tech Industry Leading the Way: The past 12 months have seen several technology deals blocked on the grounds of national security concerns about data and IP protection. Despite this trend, the advisors surveyed expect tech to lead global cross-border M&A (56% identify it as a leading sector), with continued consolidation in the healthcare, industrials and consumer sectors (each identified by 42% of respondents as a leading sector).

Reputation Matters for Deal Success: Advisors surveyed believe that a good public reputation can help increase the chances of success for an acquirer and lower deal costs. A buyer’s reputation is seen by a majority of advisors as having a meaningful impact on the ability of a company to get shareholder approval for a deal (56% feel a buyer’s reputation has a significant impact on this) and regulatory approval (53%). Additionally, more than a quarter of respondents (28%) view an acquirer’s reputation as having a significant impact on a successful integration post-merger.

The 2017 Brunswick Cross-Border M&A Survey included the views of 102 M&A lawyers, bankers and advisors from Brunswick's proprietary database of leading M&A advisory firms across North America, Europe and Asia, and was conducted from September 22 to October 17, 2017. The results were analyzed by Brunswick Insight, the firm's specialist opinion research and consulting practice, which focuses on understanding the views of opinion formers around the world. The survey results can be found here.

About Brunswick Group Brunswick Group is the leading global M&A, shareholder activism defense and investor relations communications firm. Founded in 1987, Brunswick is an organically grown, private partnership with 24 offices around the world.