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Brexit dampens cross-border M&A activity

Brexit and other global uncertainties dampened cross-border MA activity in the second quarter of the year, according to new report from global law firm Baker McKenzie.

But the company says Chinese bidders continue to drive global values, with the country’s 97 outbound deals in the second quarter worth US$40.7 billion, 23 per cent and 132 per cent higher than the same period in 2015.

Baker McKenzie’s Cross-Border MA Index shows global buyers announced 1,320 cross-border deals worth US$214 billion in the period, a 4 per cent drop in volume and a 45 per cent down in value compared to the same time of last year,

The index, which tracks quarterly deal activity using a baseline score of 100, dropped to 176 for the second quarter this year, down 17 per cent from the prior quarter and off 33 per cent from the same period of last year.

The total value of cross-border megadeals — those above US$5 billion in value — fell significantly in the first half of the year.

While there were 21 megadeals struck in the first half of 2015 worth a total US$296 billion, the 18 so far this year were worth 23 per cent less at US$228 billion, and only three of those occurred in the second quarter of 2016.

“After a record year in 2015, there’s no question that Brexit, political uncertainty in the US and elsewhere, a subdued macroeconomic environment globally and other factors have weighed on deal makers’ confidence,” said Michael DeFranco, chair of Baker McKenzie’s global MA practice.

“Even with this though, we continue to see high volumes of deals, just fewer of the mega transactions, and many multinationals are continuing to make acquisitions in support of their long-term strategies.”

Among the lacklustre global cross-border MA market, the mining sector held steady in the first half of 2016, with US$8.1 billion from 38 deals.

The report noted the market may have hit bottom, and was attracting investors from across the spectrum, on the hunt for bargains.

Regionally, the index shows Asia Pacific was the biggest spender, investing US$50.5 billion on 188 cross-regional deals, of which US$29 billion at 96 deals were targeted at the European Union.

DeFranco said the Chinese focus was on investments in technology at 15 deals worth US$17 billion and industrials at 17 deals worth US$4.8 billion.

Chinese buyers shifted their attention to the EU for targets, with 43 deals, compared with 23 in wider Asia Pacific and 19 in North America.

He added the growing importance of Chinese outbound MA was highlighted by the fact that in the second quarter of 2011, Chinese MA accounted for only 1.1 per cent of the global total, while in this most recent quarter this proportion had risen to 6 per cent.

“We continue to see activity from Chinese buyers shine in this turbulent market,” added DeFranco.

“I suspect that Chinese outbound MA will be a driving factor for MA in the year ahead and be a key part of global transactional activity.”

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