PRIVATE M&A: GLOBAL TREND

The year 2019 considered as one of the strongest years in terms of the number and value of transactions of the M&A deal globally. However, the macroeconomics issue such as trade war between the USA and China, tension in the Middle-East, Brexit has impacted the cross border deals, and many investors restricted themselves to domestic transactions.

M&A deal through an auction process is the preferable mode to assess the competition, especially the M&A deal involved hot assets such as health products, rich data-driven business and digital solution. It is being noticed by the various international law firms that 86% of North America deals were auction-based and out of that 83% are considered as highly competitive in nature. In the United Kingdom, 50% of the transaction were auctioned based and out that 62% are considered as highly competitive in nature. In Western Europe, Central and Eastern Europe, the Middle East and North Africa, 50% or lesser deals are auctioned based and out of that 40% were highly competitive. In Asia, few deals are auctioned based but out of that, 75% are considered as highly competitive.

In December 2019 a Coronavirus (Covid-19) reported in Wuhan, China and spread among China and other countries. It has been reported that many Chinese companies are looking to suspend or terminate their contractual commitments which lead to factory closure, reduction in consumer spending and impacted various sector including manufacturing, tourism, transport, retail and energy. The Global M&A so far in the year 2020 noted a significant downfall as compared to the equivalent period in the year 2019. Due to uncertainty of the Coronavirus, The Chinese inbound and outbound M&A deal is on hold for the time being. In case of ongoing M&A deals where there is a significant business link with China, the parties are taking abundance precaution in the due diligence process and stipulating the onerous covenants on the agreements to reduce the business risk. The global announced transactions fell by 35% to 587 deals valued at USD 55.1 Billion.[1]

The regulatory issue was also one of the significant stumbling blocks in the M&A deals. The significant regulatory challenges is managing antitrust and getting approval on foreign investments. The Antitrust regulator request for internal documents during merger review, which is a voluminous activity and the authority may levy penalty in case of the incomplete document. The M&A lawyer also has to pull up their socks to deal with the new foreign investment control laws which are going to be effective in next few months in Japan. Further, the United Kingdom has indicated that its national security proposal will be reconsidered. The new EU rules which require foreign investment screening will be implemented on the later part of the year. Further the USA sanctions on the Iranian Companies also creating challenges in doing business globally while few countries open the doors of foreign investment in few sectors like healthcare and education.

The year 2018 considered as the seller friendly market for M&A deals, but in the year 2019 the Buyer reclaim the lost ground. We are expecting due to various macroeconomic and coronavirus factor the year 2020 is going to witness the seller-friendly market for M&A deal.

Source:  https://www.barrons.com/articles/coronavirus-economy-mergers-acquisitions-m-a-activity-isnt-clear-51582817772