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Four trends shaping M&A in 2018

The mergers and acquisitions (M&A) outlook for 2018 is robust according to a statement from EY, pointing to significant growth opportunity for global corporates in the year ahead. The consultancy firm says there is a heightened appetite for M&A deals in the next 12 months and digital transformation is one of the main drivers behind this, as innovative start-ups and tech businesses are targeted by global corporates. Last year, deal values fell by 7 per cent but the number of deals was up 6 per cent and EY thinks this trend – with fewer 'mega deals' – could continue in 2018, due to increasing regulatory scrutiny of big mergers.

However, US tax reform could lead to more big deals in the near term, says EY's Steve Krouskos: “US tax reform could trigger some near-term large deals, but the biggest M&A story of 2018 will be the continuing era of portfolio transformation. Companies will continue to reshape themselves and acquire technology and digital assets that will help define their future. Tech-smart deals will help companies future-proof their operations and address continuously changing business models.”

Some of the trends EY expects to see in M&A during 2018 include:

Private equity at 10-year high

M&A driven by private equity (PE) reached a 10-year high in 2017 and further activity can be expected in 2018, as PE buyers join forces with companies on bigger deals. Krouskos says: “We have become accustomed to PE and corporates competing for the same assets. The emerging trend of collaboration on M&A should result in more deal activity overall as these new kinds of alliances come to the deal table.”

Cross-border expansion

There will be an acceleration of cross-border dealmaking in 2018, with companies in Europe and beyond looking for M&A targets outside their own national borders. More activity is expected from Chinese corporates looking to invest outside China. Krouskos says: “Globally integrated business models and supply chains that stretch across many borders are a fact of life. There is no way or reason to unravel that and dealmaking in 2018 will continue to reflect the interconnected business world, despite any protectionist sentiment.”

Regulatory and geopolitical risks

Regulatory scrutiny and geopolitical uncertainty are two of the top risks to business M&A, according to corporate executives. Krouskos says: “Companies are proactively finding solutions to regulatory challenges to help ensure deals are done. They know that standing still from an M&A perspective is no longer an option.”

Inclusive growth

Executives in the Global Capital Confidence Barometer (October 2017) noted their need to justify and communicate the need for M&A deals to a variety of stakeholders, including shareholders, regulators, employees and local communities. As such, M&A deals need to be about bringing value above and beyond the bottom line. Krouskos says: “The ‘purpose’ of a deal now needs to speak beyond typical synergies and cost savings to address the concept of inclusive growth. Articulating this narrative in a compelling way to ensure all stakeholders are onside will become increasingly key to unlocking future M&A opportunities.”

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