Baker McKenzie releases its 2017 Global Transactions Forecast.
After a flurry of megadeals in the second half of 2015 pushed global M&A deal values to the highest they’ve been since 2007, deal making slowed substantially in 2016 amid major economic and political uncertainty in several key economies, according to a new report from Baker McKenzie.
The Global Transactions Forecast, an annual report that provides corporate leaders and investors with an outlook on M&A and IPO activity globally, found M&A transactions fell 17 percent by value in 2016, and predicted this slowdown will continue before rebounding next year.
Michael F. DeFranco
“We expect that environment of uncertainty to continue at least for the first quarter of this year and so the forecast predicts deal making to drop slightly in 2017 to USD 2.5 trillion from USD 2.8 trillion in 2016 as global investors wait for clarity over the UK-EU relationship, and the new US administration’s policies on trade and investment,” said Michael F. DeFranco, Baker McKenzie’s Global Chair of M&A.
A few highlights from the report:
- Once greater clarity emerges, global M&A activity is expected to pick up to a peak of US$3 trillion in 2018.
- From a sector perspective, a key driver of global deals will be the tech sector, where M&A is forecast to reach US$415 billion by 2018 — the highest since 2000. Healthcare, particularly biotech and pharma deals, will also fuel the upturn.
- IPO activity is expected to rise modestly in 2017 and bounce back in 2018 and 2019 as companies that postponed their listings return to public markets.
Read the full report.
Baker McKenzie releases 2016 Cross-Border IPO Index.
Baker McKenzie’s Cross-Border IPO Index rose by 16 percent to 32.3 for 2016, as cross-border deals gained a larger share of new equity deals this year.
The Index analyzes data by region and industry, as well as by exchanges and private equity. It is calculated as a weighted average of three components of IPO activity data: the amount of capital raised, number of IPOs and number of issuer home jurisdictions involved.
“The story of 2016 is geopolitical instability, particularly as the world waited on the results of the UK referendum and US elections, along with weak economic performance in key jurisdictions, resulting in weaker investor appetite,” said Koen Vanhaerents, global head of capital markets at Baker McKenzie. “Investors have been conservative, rewarding realistic pricing and seeking as much certainty as possible.”
Added Amar Budarapu, North America Head of Capital Markets at Baker McKenzie, “North American exchanges are clearly venues of choice for cross-border megadeals. 2016 has been marked not by economic concern but political uncertainty. Markets have moved higher since the election based on pro-business sentiment and if rate increases come in 2017, equity capital raising could become more attractive.”
A few highlights from the report:
- Issuers raised $30 billion from cross-border IPOs in 2016 through 109 deals.
- Total deal value fell 25 percent on the prior year but proved less volatile than domestic IPOs, which fell by 47 percent to $56 billion.
- Cross-border deals accounted for 35 percent of new IPOs.
- Eight out of the top 10 cross-border listings by value in 2016 were on the Hong Kong Stock Exchange, with two on the New York Stock Exchange. All ten were by Asian issuers.
- The average amount of capital raised by a cross-border IPO in 2016 was $276 million, compared to $160 million for a domestic listing.
Read the full report.
What should be in your toolkit for a successful cross-border closing? Our panel at Doing Business Globally in Minneapolis discussed key steps to take for a smooth closing. Panelists included Baker & McKenzie partners Duffy Lorenz and Helen Mantel, as well as leading senior in-house counsel.
- Transfer local businesses efficiently – Prepare sign and close local documents that are based on the master purchase agreement.
- Make borders seamless – Identify, for example, where local closings are actually required, as opposed to desirable.
- Make due diligence a value-add — Identify the jurisdictions where publicly available information provides material intelligence beyond what would be publicly available in the US.
- Be ready for Day 1 – Work with business units to ensure they are thinking of all potential transition issues, such as intellectual property and board seats.
- Use deferred closings to your advantage – Identify which jurisdictions may pose a timing risk.
- Manage cash and working capital – Reassure local management that they will have adequate working capital.
- Keep you global workforce happy – This is one of the most important areas to companies, and defines how they will judge the success of the deal. Therefore, there is heightened attention to the internal communications about the transaction, and it’s a balance between keeping the workforce well informed and complying with legal requirements in various jurisdictions.
Baker & McKenzie Partner Dieter Schmitz led a discussion between General Counsels from leading companies during the Doing Business Globally program in Minneapolis this afternoon. The panelists were:
Karen Park Gallivan, Vice President, General Counsel and Secretary, Graco Inc.
Matthew Revord, Senior Vice President, Chief Legal Officer, General Counsel and Secretary, Potbelly Sandwich Shop
Jim Seifert, Executive Vice President, General Counsel and Secretary, Ecolab
Ivo Daalder, President, Chicago Council on Global Affairs
A few highlights from the discussion:
- Mr. Seifert said business can be a great avenue for peace around the world. The recent US election does not mean that solid, existing business plans are now off track. At the end of the day, the President’s power is limited.
- Ms. Gallivan discussed Graco’s strategy to keep its manufacturing in the US. While the decision may have been unpopular at first because it creates a lot of pressure as a manufacturer due to regulatory burdens and other concerns, it is turning out to be a very good thing for the company.
- Mr. Seifert discussed the growth of China, and that the nation’s GDP will be greater than the US in several years. He also noted the country is the largest purchaser of US debt. As a result, a changing relationship with China could have significant consequences.
- Mr. Revord discussed geopolitical risks and Potbelly’s growth internationally, as it now has more restaurants outside the US than within it. He noted differences in their products in different countries, accounting for changing standards and tastes from one country to another.
Ivo Daalder, president of the Chicago Council on Global Affairs and former Ambassador to NATO, delivered the keynote address at our Doing Business Globally program in Minneapolis this morning to a full room of 150 business leaders and in-house counsel, discussing the unprecedented amount of global uncertainty following the election of Donald Trump.
He touched on the questions regarding who Mr. Trump appoints to key government leadership positions, as well as the possible implications on the US’ relationship with Asia, Europe, and the Middle East.
A few highlights from his remarks:
- Ambassador Daalder asked, is the US going to get into a competitive relationship with China that forces countries to choose between the two nations for business? Asia is one of the most economically dynamic regions in the world, and if it is strong and vibrant, the rest of the world will benefit. However, if it becomes an environment of conflict, it will contribute to global instability.
- Regarding trade, Mr. Daalder noted that it is unclear whether Trump intends to renegotiate existing trade agreements, or do away with them completely. “We just don’t know, and that creates great uncertainty,” he said.
- Perhaps under Trump, this will be a new America, which relates to other countries on a one-to-one basis. This will have significant consequences economically in terms of where companies choose to do business, and in what parts of the world conflict is likely to occur.
During a discussion on global expansion at Doing Business Globally in Dallas, panelists emphasized the importance of building and maintaining strong relationships with individuals in target markets.
The conversation was moderated by Baker & McKenzie partner Michael Santa Maria, and panelists included Baker & McKenzie partner Jayshree Gupta from Dubai and in-house counsel from the aeronautics, restaurant and transportation industries.
Panelists offered guidance for companies undertaking or considering global expansion:
- Companies will often benefit from having a partner in the region. Know exactly what you need from a partner and look for quality.
- Do your due diligence. Get involved and interview counterparties. Be comfortable with your business partners.
- If timing and resource issues limit expansion, find small stepping stones to establish a presence in the market.
- To protect your brand, guard against risks to quality and reputation.
- Nothing replaces face-to-face interaction.
- Be aware of language issues. Train executives to adapt to local customs and formalities.
- Exiting can often be the most difficult part of doing business overseas.
The panelists (from left): Jason Marczak, Daniel Lund, Peter MacKay and Raymundo Enriquez
Jason Marczak, Director of the Latin America Economic Growth Initiative at the Atlantic Council’s Adrienne Arsht Latin America Center, moderated the morning plenary discussion at our Dallas program. Panelists included Baker & McKenzie lawyers Daniel Lund from London, Peter MacKay from Toronto and Raymundo Enriquez from Mexico City.
Global trade dominated the discussion and panelists touched on the impacts of Brexit, NAFTA and the recent US presidential election. The group noted that we tend to think of trade agreements as economic, but they are very much geopolitical.
A few questions and answers from the discussion:
- What will Brexit look like? Scotland may wait to see what happens. The UK needs to develop a process for discussing future trading relations.
- What are the benefits of free trade? In addition to the economic incentives, there is also the ability to lift up other parts of the world through trade. The panelists recommended that everyone needs to be a trade ambassador and that it is key for countries to think about their own internal policies.
- What should business do? Continue to be engaged, don’t panic and watch the developments.
Geoff Colvin, Senior Editor-at-Large of Fortune Magazine, gave the keynote speech this morning at our Doing Business Globally program in Dallas.
Mr. Colvin spoke to the audience about leading with confidence in an uncertain world and how business innovation is becoming necessary.
“Models that are completely outside the norm are working,” Colvin said.
To be competitive today, companies will need to implement new rules of business, and Colvin encouraged the audience to “have courage.”
Here are a few ways top performers are achieving success, according to Mr. Colvin:
- Innovate the business model: The No. 1 fear of businesses is the competitor they don’t even see as competition. These new competitors are changing the models.
- Integrate all parts of the enterprise: The best companies are breaking the silos and bringing together the creators.
- Build the new high-value skills: The skills of deep human interaction such as empathy, creative problem-solving and storytelling are needed.
- Embrace the Friction-Free Economy: Top businesses find a way to streamline their process for consumers.
Follow Mr. Colvin on Twitter | Follow Fortune on Twitter
Dr. Dambisa Moyo, global economist and author, served as keynote speaker Thursday morning at our Doing Business Globally program in New York. Here are a few highlights from her remarks:
- Global growth is slowing. Many emerging market economies are in recession, like Brazil, South Africa and Russia. In addition, in recent years we have seen an increase in the reduction of trade and cross border capital flows.
- Geopolitical developments, such as Brexit and the election of Donald Trump in the US, were considered highly unlikely. Now that they have occurred, we are in unprecedented territory for global economies.
- Dr. Moyo discussed unique “headwinds” policy makers are facing, such as technology and the creation of a jobless underclass, natural resource scarcity and global debt.
- Dr. Moyo anticipates a more siloed world. Businesses that will do well are those that don’t rely solely on cross-border capital.
- Dr. Moyo said we are seeing more business myopia than ever before. The average tenure of a company listed on the stock exchange is around 18 years. In the 1930s, it was 75 years, she said.
Follow Dambisa Moyo on Twitter | Visit her website | Watch her latest TED Talk
At Doing Business Globally in New York today, a panel of Baker & McKenzie attorneys discussed protecting trade secrets in the US, Europe and China.
The panel included Baker & McKenzie partners Bart Rankin from Dallas, Ryan Fayhee from Washington, DC, Jochen Herr from Munich, and Shih Yann Loo from Hong Kong.
A few highlights:
- Technology has made trade secret misappropriation much easier for bad actors, as well as more difficult for victims to track and trace.
- The International Trade Commission is often overlooked as a venue, especially effective when the opponent resides outside the US.
- Know your company’s trade secrets or “crown jewels” before a breach occurs.
- Companies in the US who are victims of trade secrets theft may be nervous when the government becomes involved. They may be concerned their trade secrets will end up in a public forum, and wonder how to work with law enforcement effectively.
- The US government is very sensitive to protecting and working with victims.