Deals Index* – M&A 2015 review and outlook for 2016
February 11, 2016
2015 was a record breaking year for global M&A, with total deal value up 30% on 2014, breaking the $4tn barrier. With overall volumes flat, this was a year of megadeals.
The theme is similar when looking at the UK; our Deals Index analysis shows that overall deal value was up 20% in 2015, while volume was flat. Megadeals (deals greater than £1bn) drove the trend, with 36 deals contributing more than 50% of deal value in 2015 (£81bn), compared to 24 deals generating £56bn value in 2014.
The megadeal activity in 2015 was led by the Energy, Utilities, Mining & Infrastructure (EUMI) and Health & Pharma (H&P) sectors, contributing 24% and 23% of total 2015 megadeals, respectively. We expect strong activity to continue in H&P due to strong corporate balance sheets as well as divestment activity, whilst EUMI activity is likely to be in flux until oil prices settle.
Overall, we expect megadeal activity to continue in 2016, primarily on the back of deals already signed, pending completion, such as:
- Anheuser-Busch (US) / SABMiller (UK): c.£70bn
- Royal Dutch Shell (Netherlands) / BG Group (UK): c.£34bn
- Visa (US) / Visa Europe (UK): up to c.£15bn
- BT Group (UK) / EE (Germany & UK): c.£12.5bn
- Hutchison Whampoa Ltd (HK) / Telefonica (02 UK) (UK): £9.3bn
Although overall deal volume was flat in 2015, this masks an interesting trend which indicates that inbound activity (overseas acquirors of UK targets) is up 15% and outbound activity (UK acquirors of overseas targets) was down 12%. Looking at value, the trend was even starker, with inbound up 94% and outbound down 17%. The diagram at left indicates the flow of activity.
The slowdown in outbound deals has primarily been those into Europe, due to the geopolitical and economic uncertainties in the region, which we don’t expect to substantially change in 2016. On the other hand, the relative stability and strength of the UK versus Europe has led to more inbound activity from Europe, and potentially has diverted investment from Asia-Pac to the UK. Future deal activity in the UK will depend on the relative strength of the UK economy and sterling. If these are sustained at the levels seen towards the end of 2015, we would expect continued growth in inbound deals (potentially diverting previous investment into Europe), as well as outbound deals.
Looking at corporate versus private equity activity, the relative trend has continued to move away from PE and towards corporates. PE activity was relatively stable H1 v H2’15, while corporate accelerated in H2’15.
It seems that uncertainty surrounding the UK general elections and the Grexit in H1’15 affected PE, likely compounded by a slight slowing in the growth of the UK economy.
At the same time, corporates are taking the opportunity to utilise their strong balance sheets gained in the years following the financial crisis, and are leading the charge in megadeals as discussed above. Corporates appear to be looking both for scale, but also to return to their core business (i.e. driving divestments), and we expect this trend to continue into 2016.
In respect of sector activity:
Financial Services (FS) and H&P have been hot, both in terms of volume & value (+105% / +92%, and +109% / +13%, respectively).
Retail, Consumer and Leisure (RCL) was down on volume (-12%) but up on value (+81%) as a result of significant megadeal activity: 8 out of 36 megadeals completed in 2015 were from this sector.
Conversely, sectors such as technology media & entertainment (TMT) and industrial products (IP) have been coming off of a strong 2014.
EUMI was down on volume (-31%) due to the aforementioned uncertainty in oil prices, but value was actually up (+113%), supported by 7 megadeals in 2015, versus only 2 in 2014.
* PwC Deals Index is a PwC analysis of UK deals involving a UK asset or acquirer, sourced from Thomson Reuters, Mergermarket and Prequin as at 31 December 2015, for completed deals with a disclosed value greater or equal to £25 million, and an equity stake greater than or equal to 25%.
