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2 M&A Insights | Q4 2018 | Transaction risk – the calculations change
Transaction risk –
the calculations change
While deal values have continued to soar, driven by megadeals, the outlook is
increasingly uncertain. To sustain that performance in 2019, dealmakers will
need to think in new ways about the political, legal and trade risks they face.
03 Utesting
.S. market prevails despite
market conditions
04 Top six sectors by value (USD)
336bn
The U.S. transactions market continues to tower over global M&A activity, Real estate 1.2tn
but the latter part of the year has seen signs of increasing nervousness. Energy and
Deal values soared by 57% in the first ten months of the year with an
344bn infrastructure
Financial
accent on strategic, big-ticket deals across a wide range of sectors.
services
The domestic market has been particularly strong. But the U.S. also
continues to be the world’s busiest launch pad for outbound deals and
is attracting more inbound investment than anywhere else, even though
Chinese investment fell a staggering 92% in the first half thanks to
405bn
stricter Chinese and U.S. controls. Life sciences
While activity could remain strong early in the New Year, some commentators
412bn
Consumer
question whether recent equity market and oil price volatility and the
impact of the U.S./China trade war could indicate an incipient slowdown.
906bn
TMT
If so, that could persuade some dealmakers to conserve cash rather
than invest it in transactions.
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4 M&A Insights | Q4 2018 | Transaction risk – the calculations change
Overall, however, the picture is clear. The resilience of the M&A market
has been formidable to date.
“Many companies are being slow as yet largely unknown, impact of Brexit.
we are seeing particularly in the period of M&A growth to an end, it looks certain to pose a big test for
investors’ nerves in the weeks and months ahead.
context of Brexit.”
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6 M&A Insights | Q4 2018 | Transaction risk – the calculations change
1,015 UK (2)
64 Portugal (10)
15 Bermuda (11)
Note: These figures represent deals announced between 1 January 2018 and 26 November 2018.
2000
Outbound acquirers
1000
1500
500
0
0
0 50000 100000
100,000 150000 200000
200,000 250000 300000
300,000 350000 400000
400,000
*
(1) U.S. 2,165
(4) UK 958
02 Udespite
ncertain outlook
growth in key
03 Gleading
ermany – one of the
markets for PE
CEE markets investment in Europe
While the value of transactions in Central and Eastern Europe Germany has become one of the leading markets for PE investment
has risen strongly, investors remain uncertain about the outlook. in Europe, with deal values up by over 32% in the year to date,
although volumes are lower reflecting a surplus of cash chasing
The Polish market remains strong across many sectors,
a relative shortage of assets.
with consolidation in the banking sector a highlight, and this is likely
to continue following acquisitions by Santander, BNP and Bank As Europe’s most stable economy, Germany is increasingly portrayed
Millennium of Portugal in the last 12 months. The retail sector has as a “safe haven” for investment, a title that has gained added
been lively too. There are some concerns about rising Government currency in the light of Brexit.
intervention, with the PFR development fund targeting strategic
Family-owned Mittelstand, or ‘hidden champion’ companies, across real
sectors like energy, transport and high tech, often as a co-investor.
estate, engineering, automotive, chemicals, technology and healthcare
The Czech Republic and Slovakia have seen more mid-sized deals are proving attractive targets for either partial or full buyout, as are
in 2018 spread across a number of sectors, making Sanofi’s sale occasional carve-outs of industrial business units from large corporates.
of the Prague-based generics drugmaker, Zentiva, to Advent an With sovereign wealth and pension funds increasingly prepared to
exception. Consolidation in banking and insurance is particularly invest alone rather than in partnership with PE Funds, competition for
active. Rising property prices in Hungary have revived competition assets is intense, with valuations rising.
in loan portfolio sales processes, including the recent sale of
Small, mid and large-cap funds have traditionally been dominant,
Aegon Credit and its mortgage portfolio.
but mega-funds could increasingly make their presence felt in 2019
The threat of further U.S. and possibly UK sanctions continues to hang and beyond. With huge accumulated firepower, they need new
over the Russian M&A market, although investors have grown used opportunities to deploy capital and appear ready to pursue opportunities
to the existing regime. Alternative investment from the Middle East and in Germany that traditionally have been out of reach for PE investors.
Asia is being won – as Qatar’s investment in oil giant Rosneft proves –
but at a slower pace than expected.
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