In 2015, law firm Baker McKenzie took a peek into its crystal ball, writing a report about global trends in business transactions over the next several years. The report’s authors predicted “continued strong upturn in M&A and IPOs over the next three years” thanks to trends such as accelerating global economic growth, low interest rates, and easy credit conditions. However, they also cautioned that “moderate corrections in developed stock markets will soften interest in deal-making worldwide by 2019.”
Now that 2018 is drawing to a close, it’s the perfect time to reexamine Baker McKenzie’s forecasts three years ago for global activity in mergers & acquisitions. Were they wholly accurate or entirely off the mark? Let’s find out.
2018 M&A Wrap-up
Certain industries, such as biopharmaceuticals, are having a banner year for M&A activity. In 2017, biopharma companies conducted hundreds of deals with a total volume of $200 billion. Yet impressive as this figure is, 2018 already seems poised to outstrip it.
The first quarter of 2018 saw $4.1 billion of venture capital invested in biopharma companies—14 percent more, year over year when compared with Q1 2017. According to Glen Giovannetti, research & insights leader at Ernst & Young LLP, “biotech is awash in capital right now. There is a sense that the science has really matured, that we’re seeing a lot of innovation, especially around things like gene therapy and immuno-oncology.”
It’s not just biopharma that’s performing well, however. In the first half of 2018, global M&A activity hit a record $2 trillion for the first time. What’s more, there were 33 deals over $10 billion during this time period, which is more than the entirety of 2017. Gregg Lemkau, investment banking co-head at Goldman Sachs, attributes this trend to growing levels of confidence and optimism among CEOs and executives.
2019 M&A Forecast
Despite the sky-high numbers for M&A in 2018, there may be a bit of turbulence ahead next year. According to a survey by Ernst & Young, only 46 percent of executives are planning to make purchases in the next 12 months, which is down from 56 percent last years.
Steve Krouskos, Ernst & Young’s global vice chair of transaction advisory services, “geopolitical, trade and tariff uncertainties have finally caused some dealmakers to hit the pause button.” Unresolved issues, such as the Brexit negotiations in the United Kingdom and U.S. president Donald Trump’s tariffs against China and other countries, have made corporate investors wary of the M&A landscape for the immediate future.
However, Ernst & Young notes that the forecasted M&A slowdown in 2019 is likely to be only temporary. EY analysts expect that activity will pick up again in the second half of the year since the majority of executives polled believe that the global economy is improving.
Taking another look at the Baker McKenzie report, the authors seem to have been relatively prescient, lining up with current estimates for 2019. The report correctly predicted that M&A activity would increase over the next several years and that 2019 would see a decline from these record highs.
However, note that the cause of this decline will probably be different than the predictions: rather than “moderate corrections in developed stock markets,” the slowdown is likely to come from uncertainties in global economic conditions.
Of course, whether these predictions—or the predictions of Baker McKenzie from three years ago—will come true remains to be seen.