20160401-德勤-The_Deloitte_M_A_Index_2016__Opportunities_amidst_divergence_24页_2mb

The Deloitte M&A Index Summary - 2016

Core Content

The Deloitte M&A Index provides a forward-looking forecast of global M&A deal volumes and identifies the key factors influencing dealmaking. It is based on a composite of weighted market indicators from four major data sets: macroeconomic and key market indicators, funding and liquidity conditions, company fundamentals, and valuation. The index is dynamic and continuously updated to reflect changing conditions.

Key Points

• 2015 Deal Values: 2015 is expected to end with over $4 trillion in deal values, the highest since 2007. However, the volume of transactions slowed in the second half of the year.
• Cross-Border Deals: Over $1 trillion in cross-border deals were announced in 2015, with the North America-Europe corridor accounting for a third of these. New corridors between Asia and Europe are emerging, led by China and Japan.
• Synergy Realisation: Companies are targeting annualised cost synergies of 3-4% of transaction value. If all synergies are realised, they could add $1.5-1.9 trillion to company value.
• Disruptive Innovation: Companies are investing in venture funds to seek innovation, leading to smaller but more strategic deals.
• Global Divergence: Economic and monetary policy divergence is expected to create new M&A opportunities in 2016.

Factors Influencing M&A in 2016

Divergence in Economic Growth

• US Growth: The US economy experienced a modest slowdown in the second half of 2015, with the IMF revising its growth forecast from 3% to 2.8% for 2016.
• Eurozone: Expected to grow at 1.6% due to ECB quantitative easing.
• BRICs: China missed its growth target, while India is the fastest-growing major economy. The shift from export-oriented to consumption-driven economy in China is influencing M&A trends.
• Global Trade: Stagnant since 2011, raising questions about the peak of globalisation.

Divergence in Monetary Policies

• Interest Rates: The US market has priced in gradual rate increases, while the ECB continues its quantitative easing.
• Bond Yields: Spreads between US and German 10-year bonds are widening, offering European funding opportunities.
• Corporate Bond Issuance: Overseas companies issued €155 billion in corporate bonds in Europe in 2015, compared to €120 billion in 2014.

Divergence in Corporate Performance

• Earnings and Margins: European corporate earnings have trailed US companies, but are expected to improve with ECB stimulus.
• Cash Reserves: North American non-financial companies have the highest cash reserves in the S&P 1200 Index, with $1.6 trillion, compared to $1 trillion in Europe and $844 billion in Asia.
• Integration Costs: Deloitte estimates that the average cost of integration is 4-5% of deal value, highlighting the importance of effective integration strategies.

Divergence in Deal Valuations

• P/E Multiples: US and Asia-Pacific deal P/E multiples are above 15-year averages, while Europe remains close to average.
• Opportunities: European companies are attractive targets due to their lower valuations and growth potential.

Deal Corridors

• US and UK: The US and UK dominated cross-border M&A, with $311 billion in deals between them. US companies led with $114 billion in European deals.
• Growth Markets: Growth market nations announced $49.6 billion in acquisitions in G7 countries, the highest since 2005.
• Trans-Pacific Partnership: Expected to boost cross-border M&A in the coming years.

Geographies

• North America: Announced over $2.0 trillion in deals, the highest in 15 years. US domestic M&A was driven by falling energy prices.
• Europe: $1.1 trillion in deals, with $237 billion in inbound deals from US companies. The UK was the most sought-after target.
• Asia-Pacific: $851 billion in domestic deals, led by China. Outbound investment continues despite lower growth.
• Africa and Middle East: M&A activity declined due to falling commodity prices, with Africa at $27.4 billion and the Middle East at $67.8 billion.
• South America: M&A activity is at its lowest since 2005, with Brazil in recession. Cross-border deals account for 62% of total deal value.

Sectors

Consumer Business

• Deal Values: $655.5 billion in deals, with $258 billion cross-border. US and European companies drove the majority of activity.
• TMT Influence: TMT companies are increasingly involved in cross-industry alliances and venture investments.
• Valuation Trends: Deal P/E multiples are at their highest since the financial crisis.

Energy and Resources

• Deal Values: $534.8 billion in deals, including ten mega deals. Declining commodity prices have led to reduced deal volumes.
• Consolidation: Expected to continue as companies seek to divest non-core assets.

Manufacturing

• Deal Values: $297 billion in deals, with a rise in aerospace and defence, and paper and forest products sectors.
• Activity Trends: Asia accounted for $101.2 billion in deals, while Europe had $90.3 billion.

Technology, Media and Telecoms (TMT)

• Deal Values: $928 billion in deals, up from $581 billion in 2014. 30% of these were mega deals.
• Asia's Role: Asian companies saw a significant increase in deals, with $224.3 billion in deals targeting them.
• Spending Trends: IT companies have reduced cash spending on M&A, focusing on capex and R&D.

Life Sciences and Healthcare (LSHC)

• Deal Values: $574 billion in deals, with the Pfizer-Allergan deal being the largest. Over a quarter of these were cross-border.
• Regional Leadership: North American companies accounted for nearly 69% of LSHC deals.

Conclusion

The Deloitte M&A Index highlights the ongoing trends of divergence across economic growth, monetary policy, corporate performance, and deal valuations. This divergence is expected to drive strategic M&A opportunities in 2016, particularly in cross-border deals between North America and Europe, as well as emerging corridors between Asia and Europe. Companies must focus on realising synergies and effective integration to maximise the value of their M&A activities.