Global deal-making surpassed expectations in 2017, with M&A above US$3 trillion for the fourth year in a row. Matthew Toole, Director of Deals Intelligence, and John Foley, US Editor, of Breakingviews, look back at a positive year for investment banks.
While back in 2016 the world looked to be in a rather unstable place, with a lot of disruption, in 2017 confidence roared back. And with confidence driving investment banking; the boost did indeed have an impact.
John Foley, US Editor at Breakingviews, during the webcast hosted by Deals Intelligence said: “One prediction that last year we all missed was how good a year this was going to be for investment banks.
If you look at the figures for 2014, 2015, 2016, fees had been tailing off. But 2017 was a bumper year… the markets have remained really strong, company evaluations high, and interest rates still relatively subdued.”
Key facts & figures
- In 2017, worldwide deal making hit US$3.6 trillion; on a par with 2016 levels and the fourth consecutive year to surpass $3 trillion. Deals with a value less than US$1 billion totaled US$1.3 trillion, up 7 percent.
- The value of worldwide M&A announced during the fourth quarter of 2017 totaled US$1.1 billion, an increase of 33 percent compared with the third quarter of the year and the third consecutive fourth quarter to surpass US$1 trillion in announced deals.
- Despite increased levels of outbound M&A from acquirors based in the United States and intra-Europe M&A activity, cross-border M&A activity totaled US$1.3 trillion during full year 2017, a 10 percent decline compared with 2016 and the slowest year since 2014.
- China outbound M&A totaled US$141.5 billion, a 35 percent decline compared with last year’s record.
Banking surge
At the 2017 Deal Trends webcast, Matthew Toole and John Foley agreed there was evidence of a global coordinated economic recovery. The U.S. remains in the lead, with 41 percent of investment banking spending; and this is not expected to change anytime soon.
Foley said: “The banks’ own stocks have also done really well in what is effectively a de-regulatory environment under President Trump in the United States.
“There is now more talk about rolling back red tape that previously affected these big financial firms, and the tax cuts that have happened in the past few weeks are already pushing stocks up even further.”
The level of M&A transactions during Donald Trump’s first year in the White House was the best of all modern presidents in terms of both value and number of deals.
European momentum
The UK was still the most attractive country in the EU for inbound investment, despite Brexit uncertainty.
Meanwhile, M&A within the European Union totaled US$507.1 billion, 78 percent more than the US$284.3 billion recorded in 2016 and the third highest YTD level in the last decade.
Companies in the United Kingdom were the most attractive in the EU for inbound investment, with deals totaling US$97.8 billion and accounting for 39 percent of EU inbound M&A activity.
Germany, Spain and France were the next most popular destinations.
Bolstered by multi-billion dollar deals, including the competing takeover bids for Spain’s Abertis by Italy’s Atlantia, and Germany’s Hochtief, cross-border M&A between companies in the EU totaled US$218.1 billion; nearly double the value recorded at the same stage last year.
Boutiques grow share
Over the past few years, boutiques have increasingly taken share from the bigger players, and this trend is not about to change.
Matthew Toole said: “The last four years have seen such a rise in the overall level of M&A activity, it’s been the perfect time for these firms to expand.”
As deals get bigger and more complicated, firms often turn to boutiques for the expertise they need.
Boutiques are going to continue fighting for this share, and they are going to start expanding beyond M&A. Why? Boutiques’ revenue can be very choppy, explains Foley.
A good quarter can be easily followed by a bad one, as boutiques are driven mostly by M&A, and the performance between them can be very different. If the M&A market falters, life gets tough for them.
Mega merger trends
By number, deals worth less than US$1 billion increased by 7 percent in 2017 compared with 2016.
Overall, 49,448 worldwide deals were announced during 2017, an increase of 3 percent compared to the previous year and the strongest year for M&A, by number of deals, since records began in 1980.
U.S. target M&A with deals below US$1 billion reached an all-time high for number of transactions with 12,432, up 12 percent from YTD 2016.
In this year’s Breakingviews Predictions, Jeff Goldfarb, Asia Editor, Breakingviews, points out that M&A trends are no longer towards mega deals.
In 2015, there were more than 60 mergers and acquisitions announced globally worth at least US$10 billion. Combined, they accounted for over one-third of total M&A volume, according to our data.
By 2017, the trend had reversed and the list of mega-mergers in 2018 is expected to be even shorter.
Foley said: “The bigger deals get, the more anti-trust opposition there can be. Then governments get more nervous about jobs being cut, as acquisitions tend to come hand in hand with job losses, which are less and less politically acceptable.
“The bigger deals take a much longer time to be completed; the small deals less so. The real innovation is found in the smaller deals. You could argue, these are better for the economy.”
Asia Pacific landscape
In 2017, as reported by IFR Asia’s senior reporter Thomas Blott, international banks gained ground in Asian investment banking, as a slower year for China’s domestic capital markets helped close the gap on mainland rivals.
- Bank of China took the top spot, generating US$1.2bn in fees across capital markets underwriting, loans, and mergers and acquisitions advisory in Asia Pacific, excluding Japan, equivalent to a 5.6 percent wallet share.
- Overall investment banking fees in Asia Pacific, excluding Japan, rose 16 percent last year to US$21.6bn, as a pick-up in activity offshore negated the impact of regulatory curbs in the domestic Chinese market.
- DCM fees in all currencies edged up 7 percent to US$8.12bn, as a record year for Asian G3 issuance helped offset a liquidity crunch in the mainland, the result of a concerted deleveraging campaign.
- ECM fees were up 28 percent year on year to US$6.85bn, following a flurry of technology listings, such as online insurer ZhongAn in Hong Kong and gaming-to-ecommerce group Sea in the United States.
Investment banking league tables and transaction data
Investment banking tools
We have the data, research, news and commentary that will give you the edge in a rapidly evolving corporate landscape.
Stay informed and better advise your clients with our investment banking tools and in-depth information.
Whether it’s corporate strategy and structure, equity and debt capital-raising, new business opportunities, or M&A, we can help you find the global financial information you’re looking for.
Discover Eikon: Seize opportunity with powerful financial analysis
