A number of factors spread uncertainty across the geopolitical spectrum in the year’s first quarter, including the official kick off of the Brexit process in the UK and the challenges faced by the new Trump administration in the US. Yet dealmakers seemed to shrug off the uncertainties. Cross-border deal value hit US$341.9 billion, the second highest first-quarter amount in the last decade after Q1 2008. Overall deal value for Q1 2017 stood at US$693 billion – the second highest Q1 since 2007 (behind Q1 2015, a record-breaking year).
The trend is complicated somewhat by the fact that deal volume – both cross-border and domestic – was at its lowest point since 2013. It would appear that the broader market is being somewhat cautious, leaving megadeals to dominate. The value of megadeals in Q1 2017 rose by 11% compared to Q1 2016 and was up compared to all other post-crisis years with the exception of 2015.
The energy, mining and utilities (EMU) and consumer sectors dominated the global M&A market in the first quarter. In terms of cross-border deals, the consumer sector was way ahead of any other sector with deals worth US$113.6 billion – a 33% share of the total global value.
The biggest deal of the quarter came from the consumer sector when UK-based British American Tobacco agreed in January to acquire the 57.8% of Reynolds American that it doesn’t already own in a deal valued at US$60.7 billion. Shortly thereafter, UK consumer giant Reckitt Benckiser announced that it would pay US$17.8 billion for US baby formula producer Mead Johnson. Clearly, uncertainties about Brexit did not deter these companies from making big strategic moves.
The spike in deal value came in spite of a sharp drop off in Chinese outbound activity. China had been in the top three buyers in each quarter during 2016 but dropped to seventh in Q1 2017. (For a detailed discussion of the long-term outlook for Chinese outbound M&A, see our recent report China’s rise in global M&A: Here to stay.)
The decline in overall volume may raise some flags heading into Q2. But, for now at least, economic fundamentals seem to be supporting a solid M&A market.