The Deloitte M&A Index 2016

The Deloitte M&A Index 2016

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  The Deloitte M&AIndex 2016: Opportunities amidst divergence Q4 2015
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  Record breaking dealvalues in 2015 We are expecting 2015 to end with over $4 trillion worth of deals making it the highest for deal values since 2007. However, on a last-twelve-months basis, there was a slowdown in the volume of transactions in the second half of 2015. Figure 1. The Deloitte M&A Index Deloitte M&A Index (projections) M&A deal volume (actuals) Q4 2015 M&A deal forecast Q4 2015 M&A deal forecast 8,500 9,000 9,500 10,000 10,500 11,000 11,500 12,000 Q4 2015 Q3 2015 Q2 2015 Q1 2015 Q4 2014 Q3 2014 Q2 2014 Q1 2014 Q4 2013 Q3 2013 Q2 2013 Q1 2013 Q4 2012 Q3 2012 Q2 2012 Q1 2012 Q4 2011 Q3 2011 Q2 2011 Q1 2011 Q4 2010 Q3 2010 35,000 40,000 45,000 Q4 2015 Q3 2015 Q2 2015 Q1 2015 Q4 2014 Q3 2014 Q2 2014 Q1 2014 Q4 2013 Q3 2013 Q2 2013 Q1 2013 Q4 2012 Q3 2012 Q2 2012 Q1 2012 Q4 2011 Q3 2011 Q2 2011 Q1 2011 Q4 2010 Q3 2010 Global M&A deal volumes Source: Deloitte analysis based on data from Thomson One Banker Last twelve months deal volumes High: 11,600 Low: 11,000 Mid: 11,300
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  Factors influencing dealmaking Divergencein economic growth After a strong recovery, the US economy experienced a modest slowdown in the second half of 2015 and the IMF cut the US growth outlook slightly. The IMF also expects modest growth in the eurozone, China has missed its growth target, whilst Brazil and Russia have slipped into recession. In contract, India will be the fastest growing major economy in 2015, and four of the ten fastest growing economies in 2015 are in the ASEAN region. Such divergence in economic growth means companies need to be actively on the lookout for growth markets and deal opportunities. -6 -4 -2 0 2 4 6 8 10 12 IndiaChinaUKUSEurozone 2008 2009 2010 2011 2012 2013 2014 2015E 2016E 2017E Figure 2. IMF real GDP growth, actual and forecast (2008-17E) Source: Deloitte analysis based on data from Bloomberg GDP growth %
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  Monetary policies amongthe major central banks are diverging. In the US, the market is widely expected to have already priced in the gradual increases to the Federal Reserve interest rate. While we do not expect any shocks in the debt market, increase in the cost of credit could lead to a slowdown in the issuance of acquisition-related bonds which globally stands at $282 billion, a 15-year high. At the same time, the ECB is committed to its quantitative easing programme, which has led to a slide in bond yields. This presents opportunities for global companies to take advantage of the funding conditions in Europe to raise additional debt. Factors influencing dealmaking Divergence in monetary policies Source: Deloitte analysis based on data from Bloomberg -150 -100 -50 0 50 100 150 200 250 Figure 3. US vs Germany ten-year government bond yields, 2006-15 YTD Spread US-Germany (RHS) Basispoints US Generic Govt 10 Year Yield (LHS) Germany Generic Govt 10 Year Yield (LHS) 0% 1% 2% 3% 4% 5% 6% 2015201420132012201120102009200820072006
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  Factors influencing dealmaking Divergencein corporate performance S&P 500 STOXX® Europe 600 Figure 4. STOXX® Europe 600 Index and S&P 500 Index constituents average net profit margin (%), 2000-14 Source: Deloitte analysis based on data from Bloomberg 0% 2% 4% 6% 8% 10% 12% 141312111009080706050403020100 Since the financial crisis, European corporate earnings have trailed those of the US companies, where they are close to 15 year highs. However, the gap is expected to narrow if European demand picks up following the ECB stimulus. We have already seen European corporate margins increase at a strong pace since 2013, while S&P 500 companies are expected to show three consecutive quarters of declining earnings. We expect US companies to continue cross-border M&A to offset some of the pressure, and benefit from growth in new markets.
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  Factors influencing dealmaking Divergencein deal valuations and cash positions P/E multiples for deals in the US and Asia are well above their 15 year average, whereas in Europe they are still close to their average. European companies have access to local markets that are expected to grow faster than many other developed economies, making them attractive acquisition targets at favourable deal P/E multiples. With $1.6 trillion, North American non-financial companies, led by those in the US, have the highest levels of cash reserves in the S&P 1200 Index and this puts them in a strong position to acquire assets in Europe. Note: 2015 YTD refers to 16 November 2015 Figure 5. P/E deal multiples for US, Europe and Asia-Pacific as a target, 2000-15 YTD US Europe Asia-Pacific Average Europe: 22.2 on average US: 24.5 on average Asia Pacific: 21.7 on average Source: Deloitte analysis based on data from Thomson One Banker 15x 17x 19x 21x 23x 25x 27x 29x 31x 33x 2015 YTD 201420132012201120102009200820072006200520042003200220012000 Figure 6. Cash reserves of the non-financial constituents of the S&P Global 1200 ($bn), 2008-14 Source: Deloitte analysis based on data from Bloomberg Asia-Pacific Europe North America 0 500 1,000 1,500 2,000 2014201320122011201020092008
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  Factors influencing dealmaking Impactof Chinese slowdown on M&A markets Total disclosed deal values ($bn) GDP growth % Source: Deloitte analysis based on data from Thomson One Banker and Economist Intelligence Unit Figure 8. China’s disclosed M&A deal values ($bn) and GDP growth (%), 2000-Q3 2015 LTM Figure 7. Outbound Chinese M&A deal values into Europe and North America Outbound deal values Inbound deal values 0 100 200 300 400 500 600 700 800 Q32015 LTM 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 Domestic deal values China’s percentage change in real GDP (%) 0 2 4 6 8 10 12 14 16 $35.5bn $2.7bn $8bn $10.7bn Europe North America 2015 YTD 20092009 2015 YTD The decline in Chinese GDP growth and the shift to a consumption-driven economy is mirrored by a steep increase in M&A activities, both domestic as well as cross-border. So far this year, Chinese companies have spent $65.8 billion in overseas acquisitions, with the majority in Europe. However, there was a decline in the volume of outbound acquisitions made in the E&R and manufacturing sectors, while there was an increase on the part of TMT and consumer business companies. The slowdown in Chinese growth is expected to have a ripple effect on M&A markets, first in the commodities sector, where consolidation is expected, as well as in commodity exporting nations where activities could slow down. It could also lead to consolidation in sectors such as shipping and logistics which depend on growth in trade.
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  Factors influencing dealmaking Strongresurgence in Japanese dealmaking Driven by the weak yen, Japanese corporate profits are at their highest levels in over ten years. At the same time, Japan remains saddled with falling domestic consumption compounded by a decline in real earnings, an aging population and a shrinking GDP. In response to these pressures, Japanese companies are actively looking abroad for growth prospects. Figure 9. Japan’s disclosed M&A deal values ($bn) Source: Deloitte analysis based on data from Thomson One Banker Outbound Domestic $56.4bn $81.4bn $10.7bn $46bn 2015 YTD 20092009 2015 YTD
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  Factors influencing dealmaking Focuson integration Since the beginning of 2014, companies have announced around $4.9 trillion worth of deals globally.1 We estimate that annualised cost synergies represent, on average, 3-4% of the transaction value. This means that companies have committed to realise between $150-200bn worth of annualised synergies. If all the announced cost synergies are realised and sustained, this could add an estimated $1.5-1.9 trillion to the value of these companies. The stakes are therefore high and ensuring successful deal integration is likely to be near the top of boardroom agendas for many months to come. Figure 10. Expected annual synergies as a percentage of disclosed deal value (%) Energy & Resources Professional Services Life Sciences & Healthcare Consumer Business Telecoms, Media & Technology Financial Services Real Estate 4.2% 3.7% 3.5% 3.3% 3.29% Average announced synergies of deal value 2.9% 2.9% 1.9% 1.4% Manufacturing $4.9trn Acquisition premium disclosed deal value upside integration costs Target value before M&A Target value before M&A $200-$250bn $1.5-$1.9trnvalue createdduetosynergies Source: Deloitte analysis Energy & Resources Professional Services Life Sciences & Healthcare Consumer Business Telecoms, Media & Technology Financial Services Real Estate 3.7% 3.5% 3.3% 3.29% Average announced synergies of deal value 2.9% 2.9% 1.9% 1.4% $4.9trn Acquisition premium disclosed deal value upside integration costs Target value before M&A Target value before M&A $200-$250bn $1.5-$1.9trnvalue createdduetosynergies Source: Deloitte analysis Energy & Resources Professional Services Life Sciences & Healthcare Consumer Business Telecoms, Media & Technology Financial Services Real Estate 3.7% 3.5% 3.3% 3.29% Average announced synergies of deal value 2.9% 2.9% 1.9% 1.4% $4.9trn Acquisition premium disclosed deal value upside integration costs Target value before M&A Target value before M&A $200-$250bn $1.5-$1.9trnvalue createdduetosynergies 1. Private Equity involved deals excluded
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  Factors influencing dealmaking Crossborder M&A Cross-border M&A has been one of the key features of 2015 – so far this year $1.07 trillion in cross-border deals have been announced. Europe has been at the centre of cross-border deals, with European companies participating in 53% of all announced deals. The North America-Europe corridor has dominated, worth $311 billion. So far this year, the growth markets nations have announced $49.6 billion of acquisitions in G7 nations, whereas the G7 nations have announced only $30.7 billion in M&A deals in growth markets, the lowest in over a decade. Cross-border deal flow is expected to be a key theme in the coming years, as major economies strike agreements and alliances to bolster trade. Figure 11. Cross-border deal values by target region ($bn), 2015 YTD Note: 2015 YTD refers to 16 November 2015. APAC refers to Asia-Pacific; MEA refers to Africa/Middle East Source: Deloitte analysis based on data from Thomson One Banker Europe to UK $207.9bn UK to US $33.8bn US to APAC $22.5bn US to Europe $114.1bn Japan to North America $26.4bn China to Europe $35.5bn Inbound to Europe North America: $150.9bn APAC: $68.1bn Inbound to North America Europe: $160.5bn MEA: $48.7bn APAC: $56.9bn Inbound to Asia-Pacific North America: $31.4bn Europe: $9.1bn MEA: $10.5bn 2. The G7 comprises of Canada, France ,Italy, Germany, Japan, UK and US. The growth markets are defined as Brazil, China (incl. Hong Kong), Czech Republic, Egypt, Hungary, India, Indonesia, Malaysia, Mexico, Morocco, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand, Turkey, Saudi Arabia, United Arab Emirates.
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  Deloitte refers toone or more of Deloitte Touche Tohmatsu Limited (“DTTL”), a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see www.deloitte.co.uk/about for a detailed description of the legal structure of DTTL and its member firms. Deloitte LLP is the United Kingdom member firm of DTTL. This publication has been written in general terms and therefore cannot be relied on to cover specific situations; application of the principles set out will depend upon the particular circumstances involved and we recommend that you obtain professional advice before acting or refraining from acting on any of the contents of this publication. Deloitte LLP would be pleased to advise readers on how to apply the principles set out in this publication to their specific circumstances. Deloitte LLP accepts no duty of care or liability for any loss occasioned to any person acting or refraining from action as a result of any material in this publication. © 2015 Deloitte LLP. All rights reserved. Deloitte LLP is a limited liability partnership registered in England and Wales with registered number OC303675 and its registered office at 2 New Street Square, London EC4A 3BZ, United Kingdom. Tel: +44 (0) 20 7936 3000 Fax: +44 (0) 20 7583 1198. Designed and produced by The Creative Studio at Deloitte, London. J3241 Contacts Iain Macmillan Managing Partner, Global M&A Services 020 7007 2975 [email protected]   Sriram Prakash Global Lead M&A Insight 020 7303 3155 [email protected] About The Deloitte M&A Index The Deloitte M&A Index is a forward-looking indicator that forecasts future global M&A deal volumes and identifies the factors influencing conditions for dealmaking. The Deloitte M&A Index is created from a composite of weighted market indicators from four major data sets: macroeconomic and key market indicators, funding and liquidity conditions, company fundamentals, valuations. Each quarter, these variables are tested for their statistical significance and relative relationships to M&A volumes. As a result, we have a dynamic and evolving model which allows Deloitte to identify the factors impacting dealmaking and enable us to project future M&A deal volumes. The Deloitte M&A Index has an accuracy rate of over 90% dating back to Q1 2008. In this publication, references to Deloitte are references to Deloitte LLP, the UK member firm of DTTL.