In its current M&A Trends Report "Opportunities in a Changing Landscape", Clifford Chance considers key developments on the global M&A market in 2019 – a year in which successful boards and investors will identify opportunity amid the challenges of trade tensions, political uncertainty and increasing regulatory scrutiny.
Although global M&A activity in 2018 saw a slight drop-off (-3%) in the number of deals compared to 2017, there was an increase (+12%) in global value to USD 3.5 trillion. While Germany also experienced a minor decline in total deals, an aggregate M&A volume of EUR 101.5 billion in 2018 almost matched the figure for 2017 (EUR 110.2 billion).
Global trends:
- M&A increased in value across all major regions: The largest increases were in North America (+14%), Europe (+17%) and the Middle East/Africa (+10%). The most popular sectors were TMT and Energy/Mining/Utilities;
- Cross-border M&A comprised 38% of total M&A globally. The largest M&A investment flows in 2018 were from North America into Europe (USD 238 billion) and Asia-Pacific into Europe (USD 213 billion, a 222% increase).
In the report, Clifford Chance M&A experts consider four major themes and their impact on the global deals market in 2019:
1. Strategic partnerships
Innovative and strategic partnerships are a notable feature of today's deal landscape. As a less capital-intensive complement to traditional M&A, such combinations allow companies to pool expertise and share costs to defend market position, or to expand into new markets and technologies.
The report contains practical tips for entering into strategic partnerships to ensure management of regulatory risk, security of IP, balance of governance rights and incentivisation of key stakeholders.
"With such partnerships, it's crucial that those involved are clear on the objectives and next steps from the outset," says M&A partner Dr. Christoph Holstein.
"It's not only the cost-cutting potential of strategic partnerships which has sparked the growing interest. They also enable firms to expand geographically, share expertise and access disruptive digital technologies," Holstein continues.
2. Intellectual property in M&A
Intellectual property assets are increasingly leveraged for value and used as a negotiating tool in deals. The rise of data as an asset class means that some of the most exciting deals today involve IP-rich businesses. The report shows how these must be handled with care, citing examples of downside risk, as well as highlighting routes to success.
Dr. Claudia Milbradt, partner and head of the German IP practice group:
"Depending on the goal of a transaction, there are various strategies for using IP to plan, structure and manage the deal. Swiftly identifying the strengths and weaknesses of an IP portfolio by performing a thorough yet efficient review can be a deal clincher in terms of negotiating the best price or winning the bidding process."
3. Real assets
Unprecedented levels of fundraising flowing to infrastructure, energy and real estate demonstrate the continued appeal of "real assets" that offer predictable returns in an uncertain world. As demand outpaces supply in developed markets, high valuations are forcing investors to increase their risk appetite and expand their geographical horizons.
"The quest for returns is increasingly taking financial investors into new sectors, countries and portfolio positions. Many of them have built up teams of experts and set themselves ambitious investment allocation goals. We expect financial investors to continue expanding their real asset portfolios and to provide the urgently needed cash for mega deals," explains Dr. Anselm Raddatz, partner and head of the German financial investors practice group.
4. Digital borders
Technology and data now play a central role in deals, especially when they become the focus of trade and political disputes. With many governments beginning to more strictly regulate cyberspace and data use, geographic considerations are now central to how companies structure their operations and enter new markets.
"In today's global world, digital borders are a key aspect of deals. Business models can fail as a result of these borders, or in fact become infinitely more attractive. It is vital to address this issue at an early stage in strategic discussions," emphasises Susanne Werry, senior associate in the international TechGroup at Clifford Chance.
Concern over digital borders is growing, and there are early signs of a push towards global rules governing e-commerce and cross-border data flows.
To download the PDF, go to Clifford Chance's site here.