A final flurry of large takeovers during the last months of 2016 lifted global deal-making to its second-highest annual level since the financial crisis as the appetite for corporate acquisitions continued in spite of political turmoil and heightened regulatory scrutiny.
Merger and acquisition (M&A) activity in the fourth quarter reached $1.2 trillion (€1.1 trillion), the busiest period for deal-making in 2016. A slowing of the aggressive acquisitions by Chinese firms seen in earlier quarters was offset by the year's largest deal in October: AT&T's agreed purchase of media group Time Warner for $108 billion, including debt.
In total, the volume of global M&A was $3.6 trillion in 2016, a 17 per cent drop from last year’s record $4.37 trillion but enough to make the year the second-highest for deal-making since 2007, according to data from Thomson Reuters. Takeover activity has been fuelled by the search for growth by companies in consolidating sectors and the availability of borrowing at attractive rates.
Blockbuster mergers and acquisitions of more than $5 billion in size, alongside the higher activity in the US, have been the main features of the takeover boom of the past two years. But both categories suffered a year-on-year drop in 2016: large-scale global deals slipped by almost a third to a total value of $1.4 billion, while the volume of takeovers of US companies slowed 18 per cent to $1.65 trillion.
Sarkis Jebejian, a partner at law firm Kirkland and Ellis, said: "Last year was dominated by a large number of megadeals. This year, we've had a more consistent stream of transactions, which is good for business."
The UK’s unexpected vote to leave the EU in June and Donald Trump’s election in November temporarily hampered deal-making, but Mr Jebejian said business resumed as normal once company boards overcame the shock.
Chinese companies a major force
Chinese companies became a major force in cross-border M&A in 2016, accounting for $220 billion of transactions, almost double the amount of 2015. ChemChina, a state-owned chemicals group, set the record for the largest overseas deal struck by a Chinese company when it agreed a $44 billion takeover of Swiss agribusiness Syngenta.
Cross-border interest from China as well as Japan helped prop up European deal volumes, which declined 14 per cent to $745 billion. However, the surge in Chinese takeover bids sparked a backlash in both Europe and China that could complicate further deal-making into next year.
Hernan Cristerna, co-head of global M&A at JPMorgan Chase, said: "The rate of inquiry from Chinese buyers remains high, but western sellers are increasingly scrutinising their ability to meet foreign as well as local regulatory approvals before fully engaging."
The acquisitions by German conglomerate Bayer of Monsanto and UK-based cigarette-maker British American Tobacco of Reynolds American were the largest among a wave of attempts by European multinationals to expand their global reach that by buying US rivals.
"The contrast in global capital flows has stood out this year, with a clear east-to-west theme," said Colm Donlon, head of M&A for Europe, Middle East and Asia at Morgan Stanley. "Asian companies predominantly pursued European ones and European acquirers targeted the US for growth."
Mr Donlon added that US acquirers only selectively ventured overseas into European markets. In recent weeks, Rupert Murdoch's 21st Century Fox agreed to purchase the remainder of the UK pay-TV operator Sky for £11.7 billion (€13.6 billion) and US industrial gas group Praxair struck a $65 billion merger agreement with German rival Linde.
The challenge of getting regulatory clearance for takeover deals remains a critical obstacle for companies. Withdrawn M&A climbed to an eight-year high at $804.7 billion after several of the largest transactions during the deal-making boom collapsed this year.
