Deals Index* – a look over H1 2015 and outlook for H2 2015

From a global perspective, so far in 2015, the deal market has continued to be strong in value terms.  According to Mergermarket H1’15 was the second highest in terms of value on their records. The prominence of megadeals, those over £1bn, particularly in technology, media and telecommunications (TMT), in driving this outcome has however masked some decline in deal volumes.

Deals Index Q2 2015 - UK deal values and volumes



“Corporate megadeals drive strong start in H1 2015 – this is expected to continue for the remainder of 2015, but with some choppiness from China”


Looking at the UK market, our Deals Index analysis suggests a similar trend, largely driven by megadeals in the TMT and pharmaceutical sectors.  Our analysis of deal values and volumes now compares a total 4 quarters year on year trend, i.e. 4 quarters ended Q2’15 versus 4 quarters ended Q2’14. On this basis value increased by 62% versus the prior year. However, rather than the global volume decline we’ve seen, UK volume increased, but substantially less than value at 6%, suggesting that underneath the megadeals there is a stable base of merger and acquisition (M&A) activity associated with the UK.


Increase in corporate activity

Underlying this trend is significant growth in corporate activity, driving the mega deals, while private equity (PE) activity has declined. Comparing the same periods as above, corporate deal value and volume have increased by 139% and 18% respectively, while PE has declined by 33% and 17% respectively. From a value perspective the mix of corporate to PE activity moved from 55:45 in the year to Q2’14 to 82:18 in the year to Q2’15.

Deals Index Q2 2015 - PE vs corporate deal values and volumes

It seems that perhaps some uncertainty surrounding the UK general election and the Grexit has affected PE, likely compounded by a slight slowing in the growth of the UK economy. More significantly though is the resurgent strength of corporate balance sheets and buoyant equity markets in H1 2015 in supporting corporate deal flow.

Corporates are now taking the opportunity to utilise their war chests gained in the years following the financial crisis. They are leading the charge in megadeals, and particularly game changing precedent-setting deals, such as the asset swap between Novartis and GSK completed in Q1’15 with a combined deal value of £11.7bn. Megadeals in the year to Q2’15 accounted for 58% of total deal value, up 24 percentage points from 34% in the year to Q1’14.


Scale, core and driving efficiencies

This development in corporate activity is consistent with the findings of our 18th Annual Global CEO survey, in which 56% of global CEO’s and 58% of UK CEO’s surveyed expected that they would contemplate an acquisition in 2015. At the same time, those surveyed also indicated that they would be focusing efforts on entering into strategic alliances / joint venture (JV) arrangements (51% of global & 46% of UK CEO’s surveyed). This suggests that, going forward, we would expect to see corporates looking at new ways to generate value and seeking to share risk & reward with partners. The large increase in value and surge of megadeals which we are seeing is the result of corporations looking both for scale, but also to return to their core business and drive further efficiencies. We expect this to continue for the remainder of 2015.


The sector lens

In respect of sector activity, TMT has been hot, both in terms of volume & value (+33% & +217%, respectively), while sectors such as energy / utilities / mining / infrastructure (EUMI) (volume -28%) and industrial products (IP) (value -60%) are cooling down following strong periods of activity.  TMT deals are being driven by corporates seeking scale and consolidation of European assets, such as in the Liberty Global / Ziggo (£6.6bn), Vodafone / Grupo Corporativo (£6bn) and Schneider Electric / Invensys (£3.3bn) deals.  EUMI volume declines surround the volatility in oil prices, and IP is suffering on the back of the decline in manufacturing growth.

Deals Index Q2 2015 - UK deal values by industry sector

The outlook for M&A in H2 2015

Our perspective on M&A activity for the rest of the year remains relatively upbeat, although the most recent developments in global equity markets stemming from China will make for a volatile ride.

  • TMT to maintain current levels on the back of corporates looking for further consolidation
  • Pharma global deals levels to remain high, continuing with the theme of ‘buy or be bought’, likely impacting UK activity inbound from the US and outbound from large UK corporates.
  • EUMI volumes expected to return after volatility in oil prices stabilises, valuations are re-aligned and those still standing drive consolidation in certain niches.
  • We believe that PE will return in the second half of 2015, as firms still have much dry powder to put to work and the prospect of rising interest rates and a settling of Eurozone uncertainties potentially spurring them into action
  • More broadly, improving macro-economic events in the UK should support M&A conditions, at least in the short term, such as interest rate rises in 2016; the UK election concluded; and the Grexit situation settling down).  Our recent outlook on the UK economy does suggest a slight slowing in the growth rate from 3% in 2014 down to 2.6% in 2015, but we don’t foresee that this will impact M&A that significantly.


Full infographic

For the full infographic click here 


What are you seeing in the market? What do you think will drive UK M&A deals in the second half of 2015? Share your thoughts below or schedule a meeting to discuss your situation in confidence.


*PwC Deals Index is a PwC analysis of UK deals involving a UK asset or acquirer, sourced from Thomson Reuters and Prequin as at 30 June 2015, for completed deals with a disclosed value greater or equal to £25 million.



James Fillingham | Deals Partner
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