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In 2019, affected by factors such as geopolitical turbulence, intensified trade frictions, and increased investment scrutiny in Europe and the United States, the global cross-border M & A market activity has declined significantly.
According to data from Refinitiv, a global financial market data provider, global M & A activity totaled US $ 2.8 trillion in the first three quarters of this year, a decrease of 10% from the same period last year and a record low in nearly five years.
For the M & A market in 2020, Guo Wuhan, a partner of Kewei Smithfield's law firm's joint office, said in an interview with First Financial News that it can be summarized in the words "cautious optimism": caution is that the global economy is still in The downward cycle, trade frictions, and rising protectionist trends in developed countries are unlikely to change completely in the short term.
However, compared with this year, there are also some positive factors in 2020, including a clearer Brexit situation, and China's determination and measures to open the market and welcome foreign investment.
"The promulgation of China's" Foreign Investment Law "has clearly boosted the confidence of foreign investors. It is expected that the global cross-border M & A market will start to improve significantly in the second half of 2020," said Guo Wuhan.
An extraordinary year in the global M & A market
In the first three quarters of this year, as geopolitical uncertainty intensified and trade frictions continued, global cross-border mergers and acquisitions experienced a rapid decline.
According to the data from Luft, compared with the second quarter of this year, the transaction volume of global M & A activity in the third quarter of 2019 decreased by 28%, and it has become the lowest quarter in the world since the first quarter of 2017.
Among them, the first three quarters of cross-border M & A activities totaled 841.7 billion U.S. dollars, a year-on-year decrease of 32%, which was the slowest three quarters in the past six years. From an industry perspective, the finance, energy and power, and technology industries accounted for 39% of cross-border transactions, up from 26% a year ago.
From the perspective of countries and regions, they have experienced varying degrees of decline. Among them, the total amount of M & A activities targeted at the European market was 570.4 billion US dollars, a 31% decrease from 2018; the total value of M & A transactions in the Asia-Pacific region was 526.4 billion US dollars, a 21% decrease from the same period last year, and a five-year low.
Near the end of the year, the global M & A market ushered in several important investments. In the last week of November, the luxury goods giant LVMH Group announced the acquisition of Tiffany, regarded as the largest merger in the luxury goods industry; Swiss pharmaceutical giant Novartis acquired the biotech pharmaceutical company TheMedicines for $ 9.7 billion; and Mitsubishi Japan The company (Mitsubishi Corporation) also announced the acquisition of Dutch utility Eneco for approximately $ 4.5 billion.
The surge in the size of global M & A transactions in the fourth quarter makes this year expected to be close to the total of 2018.
According to data compiled by Bloomberg, the total of 26,321 pending and completed transactions announced this year was $ 2.73 trillion, compared with 30,225 in 2018, which totaled $ 3.07 trillion. There is still a gap.
Guo Wuhan told the First Financial Reporter that in general, the global M & A market in 2019 is relatively volatile, and it can be said that it has experienced an extraordinary year.
"In 2019, there are three prominent features of the global M & A market. The first is that the major countries have significantly increased their scrutiny of their own countries; the second is that the ESG factor is becoming more important; the third is that financial investors play a more active role." Guo Wuhan said.
One of the main reasons affecting the activity of the global M & A market in 2019 is that under the influence of rising protectionism, European and American countries have further strengthened their scrutiny of foreign mergers and acquisitions, which has dampened confidence in the M & A market.
In March of this year, the European Council passed the Foreign Investment Review Framework Act, the first legislation introduced by the European Union to review foreign investment based on security and public order.
At present, among the EU member states, Austria, Denmark, Germany, France, Italy, Spain and other 12 countries have established foreign investment review mechanisms, including the United Kingdom, which is about to leave the European Union.
Analysts expect that the UK ’s Competition and Markets Authority (CMA) will strengthen regulation after Brexit, especially for those transactions that affect British consumers or involve key industries. CMA has stated that it intends to intervene in acquisitions involving the technology industry and other strategic assets.
At the same time as Western countries strengthen their scrutiny, ESG (environmental, social, and corporate governance) factors have also become important considerations affecting M & A projects.
"We see that in addition to hard laws and regulations, soft factors such as ESG have played an increasingly important role. Especially in the case of cultural differences in cross-border mergers and acquisitions, full pre-exhaustion must be carried out and integrated. At the stage, we must also take into account the feelings of the employees of the merger and acquisition enterprise, as well as environmental protection and other factors. "Guo Wuhan told First Financial reporter.
In addition, financial investors, mainly sovereign funds, equity investment funds, and retirement funds, will play a very important role in the M & A market in 2019.
Guo Wuhan analysis said that due to the influence of the general environment, listed companies and top 500 companies that had previously dominated mergers and acquisitions have been more cautious and more conservative in investment under downward economic pressure. On the contrary, financial investors are more patient. Long-term investment.
The market is expected to pick up in the second half of 2020
Looking ahead to 2020, the global M & A market is expected to maintain a mild rebound trend.
On the one hand, negative factors affecting M & A in 2019, such as the economic slowdown in developed countries, geopolitical turbulence affecting the activity of cross-border M & A, and the further strengthening of investment review by European and American countries, will not change significantly in the short term. Therefore, Guo Wuhan expects that the global M & A market will continue this year's trend in the first and second quarters next year.
But it is worth noting that there are still optimistic factors that continue to improve market confidence.
Brexit, which has lasted for more than three years, is expected to usher in the final chapter in January next year; the global trading environment is gradually improving; the Asian market is attracting foreign investment with a more open and positive attitude, which is conducive to promoting the warming of the global M & A market.
On the Chinese side, in 2019, when the market is more uncertain, smaller overseas trading activities are still active, indicating that Chinese investors have continued to show interest in the developed western economies and the markets of Asia-Pacific countries.
Among them, China's investment in Southeast Asia, Australia and Central and Eastern Europe has increased significantly compared to 2018. Energy, agriculture and animal husbandry, as well as infrastructure and infrastructure construction related to the “Belt and Road” are called the focus of investment and mergers and acquisitions. For foreign investors, the Chinese market remains attractive.
"Although China's advantage in cheap labor has declined in the past, the robust consumer market brought by China's demographic dividend still has very great potential for foreign businessmen." Guo Wuhan told First Financial reporter.
From the perspective of foreign investment industries, medical care, life sciences, and consumer goods have become major investment areas.
While having a huge consumer market, China's stable economic environment and government policy support for foreign investment have also made China one of the most popular investment destinations in the world.
On January 1, 2020, the Foreign Investment Law will come into effect. This regulation effectively improves the business environment and improves the "regulatory infrastructure" for foreign investors.
"Since the passage of the Foreign Investment Law in March this year, we have received a lot of inquiries from foreign investors. It can be said that the introduction of this bill has greatly increased the confidence of foreign investors and has greatly increased interest in the Chinese market." Guo Wuhan said that in the future, it is expected that in the financial services industry, automobiles and consumer goods industries, more and more foreign capital will enter the Chinese market.