Global M&A hit hard in first quarter, with trade war and cooling growth taking toll on Asia
- Deal value in China, which accounted for 46.6 per cent of Asia market, almost halved in first three months
- China-targeted M&A activity only reached US$77.8 billion, a decline of 35 per cent
Global deal making activity declined in a chilly first quarter, with Asia hit especially hard by the ongoing US-China trade war, growing economic headwinds and market volatility, according to separate reports from data providers Mergermarket and Dealogic on Wednesday.
The number of mergers and acquisitions (M&A) declined by 30 per cent globally to 3,558, while the value of deals declined by 15 per cent to US$801.5 billion, data compiled by Mergermarket showed.
Large cross-border deals that propelled M&A activity in the past five years “have almost disappeared”. Only nine mega deals – defined as above US$10 billion in value – have been struck, down from 14 in the same period last year.
Cross-border M&A made up only 30.8 per cent of the global pool, lower than an average of 38-40 per cent over the past three years.
Asia, especially China, has been hit hard.
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“The US-China trade war, domestic deleveraging efforts [in China] and increased regulatory scrutiny have made fundraising for private equity and venture capital more challenging,” Riccardo Ghia, research editor for Asia-Pacific at Mergermarket, said in the report.
M&A activity in Asia-Pacific, excluding Japan, nosedived in the first three months to 666 deals worth US$119.9 billion, their lowest value in five years. Deal value in China, which accounted for 46.6 per cent of the Asian market, almost halved.
Asia-Pacific outbound activity collapsed to levels not seen in more than six years.
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Private equity firms also felt the squeeze, with buyouts plunging to 66 deals worth US$8.7 billion, their lowest value since the first quarter of 2013.
Dealogic too noted the sharp decline in M&A activity in Asia. “With rising protectionism in the region”, the value of deals plunged by 26 per cent in the first quarter to US$180.2 billion, the company said in its report.
In China, deal values and valuations have both declined. China-targeted M&A activity only reached US$77.8 billion, down by 35 per cent from the same period the previous year.
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The valuation of China-targeted M&A activity has been declining for two consecutive years, with the ratio of median enterprise value and Ebitda dropping to 17.8 times in the first quarter of 2019, its lowest since 2014, when it stood at 17.7 times. The ratio compares a company’s enterprise value to its earnings before interest, taxes, depreciation and amortisation.
But there are reasons for optimism for the rest of the year.
Beranger Guille, global editorial analytics director at Mergermarket, said: “With pockets of consolidation in some particularly hot sectors, vigorous private equity activity and a healthy domestic deal flow in the US should give hope to deal makers for the rest of 2019.”
Analysts at Dealogic forecast more mega deals in the coming months, with valuations already at low levels.
M&A valuations have seen a gradual decline, with the ratio of median enterprise value and Ebitda multiples globally falling to their lowest level since 2012, at 12.01 times.
“This fall in valuation could be enough to reignite M&A fires and tempt investors into a wave of M&A deal making over the coming months,” said Dealogic.
