Opening opportunities in China
China has been a significant provider of capital to the European M&A market. However, in the last three years, this activity has declined, notwithstanding remaining higher towards Europe than towards the US. All the G7 countries and 11 of the G20 countries have, in the last three years, enacted stricter measures for foreign investment screening. Conversely, China is loosening its regulation and it’s opening up its domestic market to foreign investment. This may constitute a very significant opportunity for European companies who could now, finally, be able to invest and grow into China.
Using tech M&A for growth
Technological disruption is at the forefront of every CEO’s mind. As a direct consequence, the M&A market for technology companies has significantly grown. Technology was the smallest sector in the M&A world prior to the financial crisis in 2008. It has become the largest sector by announced volumes in the last three years.
Traditional companies are buying technology companies for many reasons; whether it is to find new avenues for growth or whether to respond to accelerating changes in their own sector. From the perspective of a technology company, this new development allows tech investors or tech entrepreneurs to benefit from an alternative source of liquidity relative to the more traditional IPO market.
Private equity: fuelling M&A
Approximately 20% of all announced volumes globally have a private equity counterparty. In Europe specifically, in the first quarter of 2019, 6 out of the largest 20 transactions have been private equity-led. Private equity today has significant capital to deploy into investment following years of successful fund raising and importantly in 2018, for the first time in 5 years, the volumes of acquisitions have exceeded the volumes of disposals by private equity firms, signalling a continued propensity to invest.
Outlook: from uncertainty to stability
2018 as a whole, was a record year for M&A volumes in Europe. Macroeconomic conditions in Europe, geopolitical concerns and the China/US trade negotiations have created concerns in the second half, generating a downward adjustment to announced volumes. 2019 has started on a better foot with volumes in the first quarter being 20% up versus the quarterly average of the second half of 2018. And we expect a stabilisation of the M&A conditions in this market for the remainder of the year.