M&A Insights Q4 2015

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Insights, Q4 2015

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M&A Insights | Q4 2015 2

© Allen & Overy LLP 2015

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8

28

18

Regional insights

9 U.S.

10 Western Europe

11 CEE and CIS

12 Middle East and North Africa

13 Sub-Saharan Africa

14 India

15 Latin America

16 Asia Pacic

A global snapshot

28 Top 20 global outbound acquirers

and inbound target markets

30 Top target markets for the

world’s largest acquiring countries

Sector insights

19 Consumer

20 Energy and Infrastructure

21 Financial services

22 Life sciences

23 Mining

24 Private equity

25 Telecoms, media and technology

6

In focus

6 Hostile M&A –

a notable feature of 2015

4Executive summary

4 Executive summary

5 Global M&A in numbers

Contents


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Investors have continued to hold their nerve amid signs of growing economic and political uncertainty, with big-ticket M&A deals pushing transactions to record levels.

Executive summary:Investors push deals to record levels

2015 HIGHLIGHTS INCLUDE:

RECORD-BREAKING YEAR FOR GLOBAL M&A

With the deal-making environment remaining strong,transactions in 2015 have risen to record levels and weend the year ahead of the previous M&A high of 2007.

CROSS-BORDER ACTIVITY ON THE RISE

With globalisation continuing to be a major driver ofM&A, cross-border deals have accounted for arounda third of all total deals this year – a trend that wethink will persist in 2016.

MEGA-DEALS TO THE FORE

Big-ticket transformational M&A deals have been adominant theme. 2015 ended with both the USD130bnmerger of The Dow Chemical Company and E. I. duPont de Nemours, as well as the proposed USD160bnmerger of Pzer and Allergan, the largest singletransaction of 2015 and the biggest pharma deal ever.

POWERFUL U.S. PERFORMANCE

The U.S. market continues to power ahead in anextraordinary way, providing the rocket fuel forgrowth in other key regions.

HAVE THE LIFE SCIENCESREACHED A PEAK?

With some USD980bn worth of deals done in the lifesciences sector in the last two years, the questionis: will investors now take a pause for breath while arange of massive deals are digested? The jury is out.

GROWING BOARDROOM CONFIDENCE

Ready availability of debt nance, record levels ofcorporate cash, supportive shareholders, and, perhaps,a determination not to be left behind, has givenboardrooms the condence to pursue signicant strategictransactions across a growing number of sectors.

PE RETURNS TO THE BUYOUT MARKET

After several years focussing mainly on securing exits,PE funds are now once more returning to the buyoutmarket and contemplating increasingly complex deals,backed by record levels of funding.

TAX STILL A DRIVER

Despite growing opposition from across the politicalspectrum, U.S. companies are still looking to dotax-driven deals – including inversions – with theaim of investing overseas earnings rather thanrepatriate them and face a high tax bill.

CHINA’S PRIVATE COMPANIES SEEKOUTBOUND OPPORTUNITIES

As the deployment of Chinese capital across the worldincreases, privately-owned companies are increasinglylooking for outbound opportunities and are provingmore eet of foot than big State-owned Enterprises.

CONTINUED GROWTH IN 2016?

Big ticket M&A looks set to continue. We alsoexpect to see the ripple effect of those mega dealslead to an increase in mid-size M&A as businessesreshape their portfolios and dispose of non-coreassets. PE will be a major buyer as thesedivestments come onto the market.



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Global M&A in numbers 2015

Note: These gures represent the total number of deals announced between 1 January 2015 and 11 December 2015.

Deal volumes by region

Top 5 sectors by value (USD)

Activity by deal value (USD)

Region% of dealsby region

Western Europe 33%

U.S. 28%

Asia Pacic 14%

Greater China 13%

CEE and CIS 3%

India 3%

Latin America 3%

MENA 1%Sub-Saharan

Africa1%

Other 1%

Over

25%

Less

than

10%

Between

10% and

25%

28%

13%

33%

3%

3%

3%1%

1%

Increase in megadeals

USD5bn +

599bnLife sciences

536bn

Energy

491bnConsumer407bn

FinancialServices

735bn TMT

96DEALS Q1-Q4 2014 131DEALS Q1-Q4 2015vs

0-500m

500m-1bn

1-3bn

3-5bn

5bn +

88%

5%

4%

1%

2%

14%


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Hostile M&A –a notable feature of 2015The return of big-ticket M&A has brought with it anotable number of high-prole hostile and semi-hostile

public M&A deals.

But just how common are they and in which countriesare they occurring? How are they being structured?What factors are inuencing deal outcomes?

And nally, how do they play out?

T

his year, there have been around

56 hostile/semi-hostile deals globally1.

This is similar to last year, though the

overall proportion of these types of

deals to recommended deals remains low globally.

That said, hostiles and semi-hostiles are a notable

xture of some markets.

One standout market is the U.S. where hostile bids

remain a common tactic, despite them rarely being

successful. A typical outcome in the U.S. is that

as a result of putting a target in play, the target

will end up being acquired by a white knight.

Given the signicant role that activist investors

have been playing in driving corporate policy,

including proposals to dismantle traditional and

common defences such as shareholder rightsplans, we expect levels of hostile bid activity to

remain signicant in this market.

Australia and the UK have also seen notable

numbers of hostile/semi-hostile deals in recent

years. In the UK, in particular, “bear hug” proposals

(ie where a potential bidder announces a possible

offer for a target conditional on the target board’s

recommendation but without the target’s backing)

have been more common and have involved

potential bidders appealing to target shareholders

to put pressure on their boards to engage.

Big international players have been eager to

elicit co-operation and ultimately securerecommendations where there may be signicant

antitrust issues and where, therefore, co-operation

from targets is either desirable or necessary. The UK

‘put up or shut up’ rules and the prohibition of deal

protection arrangements in favour of bidders have

given targets considerable leverage in negotiations,

so even where they have ended up recommending

a deal, in some cases they have been able to extract

substantial break fees (or so-called reverse break

fees) and other deal protections as a price for their

recommendations. For example, in AB InBev/

SABMiller, AB InBev has agreed to pay a USD3bn

reverse break fee in certain circumstances.

In contrast, France, Germany, Singapore andHong Kong have seen low levels of hostile bid

activity in recent years and one important

inuencing factor for this has been structural

issues. Companies are often closely held in

France, Singapore and Hong Kong, which

makes it difcult to execute hostile offers

successfully. While in Germany, it can be

difcult for successful hostile bidders to obtain

management control because of restrictive rules

on the appointment and removal of directors.



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Regional insights, Q4 2015



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Regional insights No other region has performed as strongly as the U.S. in a record-breaking year fortransactions, but that performance has had a knock-on eect in Western Europe and Asia.

Deals may not be as huge, but big-ticket strategic M&A still dominates these markets too.

U.S.

Big deals predominate

The 2015 global M&A boom that has lifted global

transaction values above their previous 2007 high has

been underpinned by continued strong growth in activity

in the U.S. market.

And with 2015 drawing to a close with both the USD130bn

merger of The Dow Chemical Company and E. I. du Pont

de Nemours, as well as the proposed USD160bn merger

of Pzer and Allergan, the largest single transaction of

2015 and the biggest pharma deal ever – the signs are

we will see more of the same in 2016. An overriding theme of the year has been the

predominance of big strategic deals in the U.S. market,

a trend that includes notable transactions in the life

sciences and TMT sectors but also reects strategic

consolidation in other industries, including food,

drinks and beverages, retail and energy.

The boardroom condence to do these mega-deals

has been supported by strong economic fundamentals,

low interest rates, ready availability of debt nancing and

strong corporate cash balances. Countervailing trends

such as the effects of a slowing Chinese economy and

signicant geopolitical risks have not so far caused

dealmakers to lose their nerve.

A consistent theme for these deals has been securing

cost synergies, greater efciencies and the benets of

economies of scale. But they separate out into both

offensive and defensive strategies.

In industries challenged by disruptive forces, one of

the principal motivations for transformational deals

has been defensive. Most companies serving the

energy and resources sector face the challenge of

coping with sharply lower oil and other commodity

prices and are seeking ways to reduce costs including

through operational synergies – one of the reasons

cited by management for pursuing the USD33bn

takeover of pipeline operator Williams by Energy

Transfer in the third quarter.

Similarly, in the cable TV industry, threatened by the

growing tendency of customers to cut the cord and opt

for streamed, on-demand content, the desire to build

scale and compelling programming has never beengreater – a signicant factor behind the proposed

USD55bn merger of Time Warner Cable and

Charter Communications.

Elsewhere and across sectors, companies have gone on

the offensive, seizing the moment to seal transformational

deals that reinforce their market position and offer the

chance to control costs and deliver extra value to

shareholders. Having taken his eponymous company

private, Michael Dell and his partners at Silver Lake

agreed to buy EMC for approximately USD67bn, driven

in large part by the hope that the combination in private

hands of hardware and software will create a formula for

success in a rapidly evolving technology sector. Activists continue to play an important role as a catalyst

for M&A. Carl Icahn has argued that American

International Group should be split three ways, while

JANA Partners is pressuring Qualcomm to split into two.

The boardroom condenceto do these mega-dealshas been supported

by strong economicfundamentals.

The Pzer/Allergan transaction demonstrates that tax

inversion deals remain achievable, despite growing political

opposition and efforts by the authorities to close

loopholes, which are likely to increase now. But for U.S.

companies that earn a signicant proportion of their prots

overseas and are reluctant to repatriate those earnings

only to face a hefty tax bill, the search for mergers that

allow them to achieve these tax gains will continue a while

longer. The question is can they nd ‘merger of equals’

candidates outside the U.S. that allow them to meettighter requirements for inversion transactions.


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Despite high prole deals such as Carlyle’s acquisition of

Veritas from Symantec, less PE fund activity in the U.S. is

focused on new buyouts – a contrast to other markets,

like Europe, where funds are once more seeking

opportunities to deploy their arsenal of dry powder.

Having said that, some of the year’s larger deals have

been driven in part by funds, not least the giant Heinz/

Kraft merger and the USD66bn enterprise IT tie-up

between Dell and EMC.

The U.S. market enters 2016 on a very strong note

that for the moment, at least, shows no signs of agging.

Commodity deals may be hampered by further declines

in commodity prices that could cause a mismatch

of buyer and seller expectations, tech deals may befrustrated by overvaluation on the equity markets,

and the progress PE funds make will be dependent

on the effect of the rise of the interest rates. But overall,

the drive for cost synergies and economies of scale,

plus activist pressure, appear set to keep transactions

moving ahead.

WESTERN EUROPE

Will growth peak?

The impetus provided by the powerful U.S. M&A market

has certainly had a knock-on effect in Western Europe

with transactions growing strongly throughout the year,

dominated by big strategic deals.

In Germany the growth was particularly strong in the rst

half of 2015, but reached something of a plateau in the

last six months. Big-ticket deals here were matched by

growing activity in the mid- and small-cap markets,

where strong pipelines have built up. PE funds remained

active during the year, although they continued to be

reluctant to take on condent, well-nanced corporates

with the repower to price in synergies.

Hostile M&A, rarely a feature of the German market,also became more apparent as the transactions

market grew, as we saw with Potash Corp’s ultimately

unsuccessful USD8.8bn bid for K+S. Vonovia also

intervened in a long-running real estate battle,

bidding EUR10bn for its smaller rival, Deutsche Wohnen

and forcing it eventually to drop its own EUR4.6bn

bid for LEG.

Here, as elsewhere in the region, the main motivating

factors behind higher activity have been the availability

of debt and a surplus of corporate cash needing to be

invested, as well as a realisation by boards that M&A

offers the fastest way to grow in a relatively low-growth

environment. Unlike in the UK and the Netherlands,German investors showed growing nervousness about

the capital markets as the year wore on, however.

By contrast the successful IPO of Dutch bank ABN Amro

was widely seen as a mark of growing condence in the

wider economy. There had been some doubt about

whether this transaction would go ahead successfully,

but the rst offering of shares raised EUR3.3bn as the

Dutch government began recouping money invested in

rescuing the bank during the nancial crisis. More widely,

we’ve seen more IPO activity here than for a number

of years.

Standout big-ticket M&A deals during the year included

the proposed GBP47bn Shell/BG transaction and the

giant USD120bn brewing merger between AB InBev

and SABMiller, alongside transformational cross-border

deals such as the strategic tie-up between the main

bottlers of Coca-Cola in Europe.

There has been a sharp uptick in activity by inbound

investors, notably from the U.S. and from privately

owned Chinese companies prepared to bid aggressively

for sought after assets. Their interest is across sectors

but is particularly focused on distressed assets that can

be bought relatively cheaply. A weaker euro has affected

valuations, but other factors are at play here for Chinese

companies – a desire to diversify into new markets

and the search for brands and technologies that can

be exploited at home.

There has been a sharpuptick in activity by inboundinvestors, notably from theU.S. and from privatelyowned Chinese companiesprepared to bid aggressivelyfor sought after assets.

And as the giant USD160bn Pzer/Allergan deal proved,

U.S. companies – particularly those with strong

overseas earnings – are still looking for inventive ways to

do tax inversions despite growing political disapproval at

home, with Ireland and the UK seen as key jurisdictions

in which to redomicile.

TMT was one of the most active sectors in the Italian

market during 2015 and the announcement of the

acquisition by billionaire Xavier Niel of a EUR1.7bn stake

in Telecom Italia S.p.A., Italy’s largest phone company,

conrmed this trend. We expect further developments in

2016, including examination of the merger between

Hutchison Whampoa’s 3 Italia and Vimpelcom’s Wind,

and Telecom Italia’s asset sale strategy to reduce a debt

load of some EUR27bn.



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The fourth quarter of 2015 has followed the general

trend of the previous three, with Italian M&A dominated

by investments in medium-sized companies, especially

in retail, food and consumer goods, including clothing.

There have been several signicant energy deals –

approval for the integration of Enel Green Power into

Enel, for instance, and Fondo Strategico Italiano’sagreement to acquire a 12.5% interest in Saipem

S.p.A. from Eni. Real estate has also been busier.

Following the part privatisation of Enel and Poste

Italiane’s IPO, we expect state sell-offs will continue

in 2016. Ferrovie dello Stato has ofcially started its

40% privatisation process and ENAV’s 49% stake

will probably be listed in the rst half of the year.

By and large, it seems investors seem to have any

macro-economic fears under control although the

upcoming UK referendum on EU membership could

prove increasingly disruptive if a vote for Brexit looks likely.

More immediately, emergency measures to counter the

terror threat could have a bigger impact on condence.

Against that background the outlook for 2016 looks

somewhat mixed. Boardroom condence to do deals

seems largely undiminished, cash and nancing remain

readily available and the economic environment remains

good for transactions. However, with so many big

transactions completed in 2015, we could see some

investors take time out to digest those deals. In Germany

there is also a chance that diminished condence in the

capital markets could lead to a growing wariness among

M&A investors.

But with globalisation still a main driving factor behind M&A

activity, we are condent that the outlook for signicantcross-border transactions will remain positive in 2016.

CEE AND CIS

New signs of life?

In early 2015, the political instability generated by theUkraine crisis had an impact well beyond Russia’s

borders, depressing investor enthusiasm and dampening

M&A activity across the CEE region as well. But as 2015

progressed, that changed, with a number of markets in

Central and Southern Eastern Europe showing new

signs of life.

We expect that decoupling to continue in 2016,

with activity in Russia continuing at a relatively low ebb,

but with the CEE region experiencing faster growth amid

increasingly strong economic fundamentals in some key

economies. We saw transaction activity across C&SEE

in 2015 being dominated by the TMT sector, with other

transactions in traditional sectors of energy and nancial

services still playing a big part, though less so than in

previous years. Consumer/retail and healthcare are

also strong alongside a resurgent real estate sector.

We would expect these trends to continue.

Nowhere is that more true than in the Czech Republic,

currently enjoying strong GDP growth and low

unemployment and seeing a resurgence of signicant

M&A activity in key sectors. Standout deals in recent

months have included the EUR1.25bn acquisition of

Czech tyre maker CGS by Swedish industrial

conglomerate Trelleborg and Rockway Capital’s

EUR200m acquisition of the Czech Republic’s second

biggest e-commerce operator, Mall, and the price

comparison service, Heureka.

The main motivating factors behind higher activity

have been the

of debt and a surplus of corporate cashneeding to be invested.”

availability


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Events in Hungary continue to be dominated by the

government’s strategic ambitions, including in particular

the renationalisation of key assets, notably in the energy

and utilities sectors. There has also been a slew of

acquistions in the nancial institutions sector, as well as

the exertion of increasing inuence over the media sector

including, indirectly, media M&A. Its stance on energy

and utilities is unlikely to change much in 2016 – it

remains convinced that it needs to exercise greater

control over these key assets.

But we could see some sort of shift where banking is

concerned. Some believe the government’s plan to

work alongside the European Bank of Reconstruction

and Development to buy stakes in Erste Bank Hungary

could mark a turning point and that 2016 could see it

once again opening the door to private investment in the

sector, rolling back some of its acquisitions (a process

which has to some extent already started). Otherwise, we

see a lot of activity being considered through an increasing

number of joint ventures and private equity starting to look

at Hungary again, after a hiatus.

Elsewhere in the region the trend for governments to sell

assets to raise much needed funding continues although

the process is not always smooth, as we have seen with

the failed sales of both Telekom Slovenia and Telekom

Srbija. PE funds are once again circling the market, many

looking for new investment opportunities outside

well-mined economies such as Poland. Sales of

non-performing loan portfolios are also a feature with

processes already started in Slovenia and expected

soon to go ahead in Serbia and Croatia.

Sanctions, poor economic growth, depressed oil

prices and political interference continues to depress

activity in Russia, although it’s fair to say that there is

sufcient stability in this new environment to encourage

some investors to seek out opportunities.

A number of marketsin Central and SouthernEastern Europe areshowing new signs of life.

With access to Western nancing effectively blocked

off by sanctions, Russia is increasingly looking to other

regions for funding, not least China, India and the Middle

East. Some outbound investment continues – as we’ve

seen with Rosneft’s continued investment in the German

rening sector, alongside its existing joint venture with BP

there. Inbound European and U.S. investment is subject

to signicant delay and even cancellation, however.

Privatisation remains on the cards, but we do not expect

to see much progress on this in the near-term particularly

at a time when assets are likely to be considerably

undervalued. Any such moves in 2016 are likely to

be one-off transactions, rather than part of a wider

programme of state sell-offs.

MIDDLE EAST AND NORTH AFRICA

Consolidation continues

The nal quarter of 2015 opened with a drop in deal

volume while values inched higher, albeit down against

the same period in 2014. The majority of deals were

smaller in scale, with the trend of consolidation and

strategic transactions seen in earlier quarters continuing,

through acquisitions of minority stakes and increases in

existing shareholdings.

Economic growth in theregion, together with positive

demographic trends andproximity to expandingmarkets in Africa, are alllikely to be instrumental incontinuing to attractinternational investors.Global market volatility and continuing regional political

turmoil inevitably have had an effect on investors, but they

are for the most part holding their nerve. Cash and liquidity

levels in the region, particularly in the Gulf CorporationCommunity (GCC), remain high, largely as a result of years

of high oil prices. On the whole, governments in the GCC

have sufcient reserves to remain committed to key

projects. GCC-based corporates appear to be eyeing the

wider MENA region for opportunities not only to increase

returns and get a foothold in less developed markets

within MENA, but also to reduce their reliance on domestic

markets. The region’s sovereign wealth funds are also

engaging in deals which are more strategic, investing

money with the aim of providing income for future

generations as part of a general diversication strategy.

There is improving condence amongst market

participants, both globally and regionally. There is afeeling that those regional economies dependent on the

hydrocarbon industry are weathering the storm and that a



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good pipeline is developing, particularly in the UAE. There

are also signs in the market that valuation expectations are

becoming more reasonable, which, when coupled with the

availability of cash and nancing, should help create an

environment where more deals are done.

Economic growth in the region, together with positive

demographic trends and proximity to expanding markets

in Africa, are all likely to be instrumental in continuing

to attract international investors, particularly in the

face of fewer opportunities in the U.S. and in Europe.

Saudi Arabia, the UAE and Egypt were among the

most active countries during Q4, with Egypt continuing

to emerge as an attractive destination for overseas

investment. Whilst regulatory complexities in some

parts of the region can act as a deterrent for investors,

Egypt has recently introduced policies friendly to

business. It is currently enjoying increased political

stability and as a net oil importer is believed to be

benetting from the continuing lower oil prices.

Elsewhere in the region, the opening of the Saudi

Stock Exchange to foreign investors may also lead

to an increase in cross-border activity.

International PE investors’ interest in the region continued

in Q4. In one of the stand-out deals of the quarter,

U.S.-based PE houses Warburg Pincus and

General Atlantic announced a deal to acquire 49%

of Network International (NI) from a consortium led

by the Abraaj Group. NI is the largest payment processor

in the region. It is believed to be the rst investment by

General Atlantic in the region, whilst Warburg Pincus has

already shown its interest in the region with its acquisition

of a majority stake in Dubai-based Mercator last year.

In one of several deals in the healthcare sector during

the quarter, UAE-based Aster DM Healthcare increased

its 40% holding in Saudi Arabia-based Sanad Hospital

to 97%, for a consideration of USD245m. The healthcare

sector has led Saudi M&A activity this year, a reection

of the increased demand for services in this sector

that local population growth is creating. Activity in

the telecoms sector is expected to continue and,in another Saudi-related deal, Saudi Telecom announced

its intention to make an offer to increase its 26%

shareholding in Kuwaiti mobile operator Viva to 100%.

The deal would be worth approximately USD1.1bn and is

subject to consent from the Kuwait Capital Markets

Authority. Viva is Kuwait’s second largest telecoms

operator and was listed on the Kuwait Stock Exchange in

December 2014.

With the ease of doing business in many countries

in the region increasing and a good ow of deals in

the pipeline, the outlook is positive and, despite the

challenges, there are certainly opportunities to be had.

SUB-SAHARAN AFRICA

Preparing for future growth

Dealmaking activity in the region has been relatively

muted throughout 2015, but as the year draws to a close

there are signs of increased activity in key markets and

sectors. With increased levels of capital being built up to

invest across the continent, 2016 should be a livelier

period for transactions.

A disappointing performance in 2015 is, however,

understandable. Investment into Africa has traditionally

been primarily focused on the resources sector and

so the fall in oil and other commodity prices and a

slackening of demand from key markets, notably China,

has hit Africa particularly hard.

In certain markets the global decline in commodity

prices has been exacerbated by local difculties.

South Africa, for instance, remains a tricky market

for resources investment, thanks to government

interference, labour problems and regular power

outages, all of which continue to be problematic

for the mining and energy sectors.

Other traditionally strong sectors are faring better,

however, notably telecoms where we continue to

see a good stream of both infrastructure deals and

the sort of consolidation between operators that

has become such a feature in European markets.

Investment in power andtransport infrastructureremains a pressing need

across the region and apotential key focus forinbound investment.

This year we’ve seen Sweden’s Millicom become

the second largest operator in Tanzania, having acquired

an 85% stake in Zantel from the UAE telecom operator,

Etisalat. PE Fund Helios has also acquired a 70% stake

in Telkom Kenya from Orange for an undisclosed sum.

Further deals are on the cards in the year ahead.

Investment in power and transport infrastructure

remains a pressing need across the region and

a potential key focus for inbound investment.


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Such investment can act as a real spur to economic

growth but requires governments to create the right

legal and commercial frameworks for projects to

proceed. In South Africa we expect the government

to clarify its approach to inward investment in a number

of crucial areas, not least foreign ownership of land,

which should, hopefully, boost investor condence.

Investment in less traditional areas – consumer goods,

retail and nancial services – is also full of potential,

as economies grow and the middle-class expands.

A number of PE Houses have established specialist

Africa funds to pursue opportunities, including Carlyle,

KKR, Blackstone, Helios and Dubai-based Abraaj.

The appetite to invest is certainly there but a scarcity

of good assets remains an obstacle, albeit probably

a relatively short-term one.

Investors within the region are also looking for

opportunities across the continent and overseas.

South African investment house, Brait, for instance,

completed two important UK deals during the year,

acquiring fashion retailer, New Look, and a controlling

interest in Virgin Active, the health and leisure business.

A further deal involving Brait was its sale, together with

the Titan Group, of 92.34% of Pepkor, to Steinhoff

International Holdings.

We continue to see capital owing more freely withinthe region. Nigeria’s ambitious industrial conglomerate,

Dangote Group, has announced plans to expand its

operations, particularly cement making, into a number

of African countries.

As the year ended we also saw South Africa’s Sanlam

spend USD375m to acquire a 30% stake in Morocco’s

Saham Finances as part of an effort to nd new North

and West African markets for its insurance products

to offset slower growth at home.

With key African economies forecast to see some

of the highest growth in GDP in the coming years,

we continue to believe that the current dip in transactions

activity will be short-lived, with activity beginning togrow again, both in terms of M&A deals and

IPO activity, starting in 2016.

INDIA

Growth slowly builds

High expectations that the 2014 election of a majority

government, led by Narendra Modi, would lead to a

period of rapid economic reform and a return to strong

growth were, perhaps, always a little overblown and themonths since have proved that to be the case.

The government continues to make progress with its

reform agenda, but it has proved harder to push through

measures than many had expected and that has

translated into some investor uncertainty and fairly

sluggish growth in the M&A market.

2015 saw the volume of M&A deals climb to 442,

with energy and natural resources, life sciences,

IT and IT enabled services being the busiest sectors

for transactions. With deal values at USD37.1bn this is

a robust performance compared with many other

emerging markets.

Activity by PE rms, however, has been much stronger

this year with funds deploying capital across a wide

range of sectors. Indeed there were an estimated

462 PE deals in 2015 worth some USD13.6bn,

a 40% increase in value on the same period last year.PE deals done so far in 2015 have included some of a

very good size, including Carlyle’s USD500m investment

in Magna Energy, the upstream oil and gas company,

and DST Global’s USD400m investment in Olacabs,

the online cab and car rental group owned by

Mumbai-based ANI Technologies.

We expect the overallposition to improve

in 2016.We expect the overall position to improve in 2016,

with PE continuing to make a strong showing and

corporate transactions picking up too.

But progress is likely to be relatively slow and much

will depend on the government’s success in making

further progress with important reforms to attract

foreign investment.

That effort has not been helped by recent regional

elections in Bihar, India’s third most populous state,

which saw Mr Modi’s BJP party suffer an unexpected

and fairly convincing defeat. While some believe that hastaken some of the momentum out of the reform agenda,

there is little sign of the government changing course and

the expectation remains that crucial new legislation will

still make it through Parliament.

One measure is particularly important – the introduction

of a national goods and services tax to replace a

complex system of regional taxes. A bill to introduce

the tax is pending.

The government’s Make In India campaign – smoothing

the way for foreign manufacturers to invest in ventures

in India – should also have an important and benecial

impact on direct investment and feed through to higher

levels of transactions. Mr Modi’s commitment to makinga success of this campaign has been underpinned by

an almost non-stop round of foreign missions to attract

investment and open new trading routes during his rst

18 months in power.



7/21/2019 M&A Insights Q4 2015


LATIN AMERICA

Awaitinga turnaround

2015 was a difcult year for transactions across Latin

America, as a range of economic and political issues

conspired to dampen investor condence in the region.

Despite the Presidential elections later in 2015 and

Ms Dilma’s re-election, Brazil found itself wrestling

with a growing political crisis as the year unfolded,

compounded by sharply declining GDP growth,

increasing ination, growing unemployment,

slow progress on much needed economic reformsand a Petrobras corruption crackdown (the so-called

Car Wash scandal). Investors continue to look for

political certainty.

Activity in Argentina also slowed ahead of elections

there, although with the new Macri government –

which is clearly determined to turn round economic

performance – in place we expect to see activity

pick up now. Peru too has elections in 2016, and activity

has been quieter while investors anticipate the outcome.

Add to all this a number of external factors – not least the

downturn in commodity prices, reduced demand from

China for natural resources and the effect of the rise

in U.S. interest rates – and it’s not hard to see whyinvestors have been increasingly nervous about

buying assets in the region.

Nevertheless we’ve seen some signicant transactions.

Some of these have involved local players buying out

foreign investors, with the most signicant deal beingthe USD5.2bn acquisition of HSBC’s Brazilian banking

operations by Banco Bradesco. There has also been

a good spread of domestic deals, including the

USD710m sale by Camargo Correa of Alpargatas,

the public company that includes Havaianas, the iconic

Brazilian shoemaker famous for its fashion ip-ops,

among its interest. The buyer is J&F, the Brazilian

conglomerate that also controls JBS, the world’s

biggest beef producer.

Investors continue tolook for political certainty.

Despite devaluation of the real and lower asset prices,

Brazil is still not seeing the expected upsurge in inbound

investment, although we did see Coty buy the Brazilian

cosmetic division of Hypermarcas for USD1bn and

China’s HNA invest USD450m in a 23.7% stake in

the airline Azul. The tobacco giant, BAT, also spent

USD2.45bn to buy out the shares it did not already

own in Souza Cruz to carry out its plans to delist the

company and take it private.

Mexico – beneting from faster progress on economic

reforms, notably in the power and energy sector,

and its close ties with the U.S. economy – has been

more successful in attracting investment across a

Economic and political issues

to dampen investor conspiredconfdence in the region.”


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number of sectors, including oil and gas, telecoms

and manufacturing. U.S. investment is, for obvious

reasons, in the lead here, but we are beginning to

see growing interest from Western Europe,

especially Spain and Portugal.

That’s true too in Peru, Colombia and Chile, if on a

smaller scale. While these countries are no longer

beneting from the rapid growth in GDP of recent

years, forecast economic growth remains resilient

and in a range of 2% to 3%. With that growth

founded on a pretty stable base, it should bode

well for increased activity in the year ahead.

While interest from Chinese and other Asian investorsin doing commodity deals in the region is likely to be

much lower while commodity prices remain at a global

low, we do expect to see more transactions from

this source in other sectors, notably from Chinese,

Japanese and South Korean companies.

Chinese and South Korean investors have been seeking

out opportunities in the region for some time, but so far

we have not seen interest translate into many completed

deals. That could well change in the months ahead.

ASIA PACIFIC

(INCLUDINGGREATER CHINA)

Growth continuesdespite challenges

The values of transactions in the region may not be quite

of the magnitude of some of the massive deals seen in

other markets, notably the U.S., but signicant big-ticket

deals continue to be a theme here too and transaction

volumes have continued to rise in 2015, a trend we

expect to continue next year.

Across the region Japanese, Chinese and other Asian

investors continue to dominate the deal landscape.

With Japan’s economy once more teetering on the edge

of recession, Japanese companies and trading houses

are continuing to look for opportunities in more vibrant

economies, both within the region and further aeld,

and are a visible force in cross-border activity.

Increasing amounts of Chinese capital are being deployed

outside China’s borders, but there is a perceptible shift in

the balance of that investment. While the big state-owned

enterprises (SOE) continue to be distracted by and

preoccupied with the government’s ongoing anti-corruption

crackdown, this is hampering decision-making.

By contrast, private Chinese investors are proving

increasingly eet of foot and acquiring even if the targets

they are focusing on are smaller in terms of value.

That’s an important change at a time when there is more

money in the global economy generally and competition

for assets across the world is growing. It would not be

surprising to see these private companies continuing

to play an increasingly active role in the ongoing wave

of outbound investment from China.

As the Chinese economy continues to rebalance,

one signicant driver will continue to be Chinese

companies seeking out brands and technologies that can

be developed afresh and exploited at home. The planned

sale of Osram, the lighting division spun off by Siemens

two years ago, is said to have attracted several potential

bidders, the majority of which are reputed to be Chinese.

In a number of sectors, the effort to build scale for Chinese

manufacturers is now being superseded by the challenge

to modernise and increase productivity and innovation

to address over-capacity and high costs in China.

China remains a challenging market for inbound

investors, and all the more so since the government has

strengthened its antitrust regime, taken a much tougher

line on corruption and imposed new controls on foreign

ownership in key sectors such as IT. But the opportunities

in this market make it one that overseas investors

can scarcely ignore and we expect to see continued

investment, with a growing accent on teaming up with

local partners who can help them navigate a complex

and often opaque market.

South East Asia remains relatively quiet in terms of

completed transactions, with key markets such as

Indonesia, Malaysia and even Singapore remaining

fairly inactive. But a number of major transactions are

going ahead as we saw with the recent USD2.3bn

acquisition of power assets in ve countries by China

General Nuclear, bought from the struggling Malaysian

government investment fund, 1MDB. Behind the scenes

too there is growing activity from corporate buyers and

PE funds are once again scouting for deals, particularlyU.S. dollar denominated ones, who see an opportunity

to acquire assets relatively cheaply at a time when

local currencies have declined in value.

Australia continues to experience strong levels of activity.

Newly appointed Prime Minister, Malcolm Turnbull,

continues to impress the Australian business community

in the early stages of his leadership. With the Australian

dollar having weakened considerably since the start of the

year, the climate for foreign investment in Australia remains

very positive, and the outlook for 2016 equally so.



7/21/2019 M&A Insights Q4 2015


Japanese companiesand trading houses arecontinuing to look foropportunities in morevibrant economies,both within the regionand further aeld, andare a visible force incross-border activity.

The largest Australian IPO of the year completed

successfully in November, with Link Group joining the

ofcial list of the ASX with a market capitalisation of

approximately AUD2.5bn. The IPO raised approximately

AUD950m and was oversubscribed many times over.

All four bidders in the auction for the privatisation of

the New South Wales electricity assets received foreign

investment approval. A consortium led by Hastings Funds

Management, dominated by Canada’s Caisse de dépôt

et placement du Québec and sovereign wealth funds

from Abu Dhabi and Kuwait, was appointed thesuccessful bidder with a reported bid price of

approximately AUD10.3bn.

Interest from Middle Eastern sovereign wealth funds

and Canadian pension funds is being seen more widely

across the region. While their main investment targets

are infrastructure and real estate, interest is spreading

to a wider number of sectors and we expect to see

further activity from them in 2016. Competition from

these funds is also forcing traditional PE operators to

emulate their investment strategies, taking a longer-term

“asset management” rather than “asset churn”

approach to transactions.

The overall outlook for 2016 looks positive, particularly as

we see further growth in outbound investment from China.

While China’s growth is slowing and last summer’s wild

stock market uctuations continue to have an impact

on sentiment domestically, the amount of money

being generated by the Chinese economy remains

mind-boggling, and increasingly that money is

being deployed overseas with active government

encouragement. That should mean that the growth

in transactions we have witnessed in 2015 will be

sustained next year.

The opportunities in this market make it one

that overseas investors can

ignore and we expect to see

continued investment.”scarcely


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Sector insights, Q4 2015



7/21/2019 M&A Insights Q4 2015


Sector insights As the year unfolded, transformational deals spread across all sectors and we evensaw a resurgence in nancial services. There are signs too that PE funds are onceagain on the front foot.

CONSUMER

Consolidation set to continue

2015 has involved consumer groups making bold moves

towards the expansion of their global footprint and product

coverage, completing deals that may have been considered

too risky even only a year or two ago, whether from a

commercial, nancial or antitrust perspective.

This has been seen across multiple market segments

including: food, with the giant USD100bn merger of

Heinz and Kraft; brewing, with the AB InBev/SABMiller

USD120bn, largely debt-funded, move to create a truly

global beer group; non-alcoholic beverages, with the

alliance forged between Coca-Cola’s European bottlers;and pharmacy, as Walgreens/Boots Alliance extended

their venture by bidding USD17.2bn for Rite Aid.

The AB InBev/SABMiller deal – involving more than

USD70bn of debt nancing – is a good example

of the new mood of condence in boardrooms,

where macro-economic conditions are encouraging

executives to complete transformational deals.

The attractiveness of the transaction overrides

any concerns around regulatory scrutiny and,

where possible, such concerns are proactively

addressed – for instance, through the proposed sale

of SABMiller’s majority stake in its North American

MillerCoors joint venture to its partner, Molson Coors. This continues a trend started last year, most notably

in the tobacco industry with the three-way Reynolds/

Lorillard/Imperial Tobacco transaction.

It is not exclusively about expansion and consolidation,

however. The tie-up between the Dutch and Belgian

supermarket groups, Ahold and Delhaize, also

exemplies the movement in grocery retail towards

focused localisation, rather than broad-brush

globalisation, as retailers struggle to balance the

local needs of their customers with the demands

of a global business to ensure purchasing power

and cost management through volume. Similarly,

Tesco’s disposal of its Korean business is principallydriven by the group’s need to mend its nances,

but there is also a strong desire to focus more

on its domestic business.

We expect to see the tideof transformational dealscontinue to rise in 2016.

The USD28bn Ahold/Delhaize deal is, in large part,

about pooling signicant resources to tackle local

competition in an important overseas market,

namely the East Coast of the U.S. (the new group

will have over 2,000 stores in the U.S.), resulting in

a combined business with much greater scale. The hope

is likely to be that greater scale will allow local customer

needs and global business demands to be balanced

successfully. A number of incoming retailers havestruggled to crack the U.S. market, so progress here will

be watched very closely by other players in the sector.

We expect to see the tide of transformational deals

continue to rise in 2016, with a determination to get

deals off the ground that have not been lacking funds

or appetite but might have been dependent on

completion of the larger consolidative deals and the

resulting availability of attractive targets which do not

t within that bigger picture business plan. This has

certainly been the case in emerging markets such

as sub-Saharan Africa and particularly pertinent

global world.

If macro-economic tailwinds strengthen, conditions mayalso be ripe for an increase in the volume of deals.

We could well see the coming of age of a number of

consumer businesses that launched in the aftermath of

the nancial crisis and are now growing rapidly. As they

look to build on or benet from that growth, we could

see a number attempting to raise new nance and partial

exit through IPOs or sales to strategic or private equity

purchasers. That’s certainly a growing trend already in

the FinTech sector, not least with the rise of peer-to-peer

lending, but we expect it to manifest itself more widely,

particularly in online retailing and related payment

systems and the consumer world as a whole will

feel the ramications.


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ENERGY ANDINFRASTRUCTURE

Uncertainty returns

After a long period of slower activity, 2015 saw the

return of strategic mega-deals to the oil and gas sector,

as major players looked for ways to consolidate their

market positions and take advantage of a downturnin oil prices.

Shell’s proposed GBP47bn strategic takeover of BG

and ENOC’s USD6bn acquisition of Dragon Oil are

both cases in point. The oileld services sector has also

seen a spike in activity during the year, notably with

Halliburton’s proposed USD35bn merger with Baker

Hughes and Schlumberger’s USD12.7bn takeover of

the oil toolmaker Cameron.

In the second half of the year investors have, however,

become noticeably more cautious. The summer

gyrations in Chinese stock prices, the continuing fall in

commodity prices and the now generally accepted view

that oil prices are unlikely to recover for some time, haveall fed this sense of unease.

Notwithstanding this scenario, the market is expecting

the majors to seek to dispose of assets with signicant

capex requirements. This may provide an opportunity for

those investors that are able to take a longer-term view

on the oil price, such as the NOCs, to acquire assets

that, in normal markets, would not be available to them.

The impact of lower oil prices has also been felt among

the smaller players in the sector, with companies either

unable to continue funding developments on their own

account or to attract alternative bank nancing to see

projects through. Similarly, in the oil services sector, the

reduction in capex budgets and focus on cost reductions

within E&P companies is beginning to have an impact on

a number of the service sector participants who are now

having to look at restructuring options.

To date, this has not led to the expected pick-up in

transaction activity. It seems that investors looking to

snap up either individual assets or whole businesses

are holding re while the market remains so volatile

and the outlook on the oil price is so hard to predict.

Given current concerns over the levels of commercial

oil stocks and the possible risk of another signicant drop

in oil prices, investors may well sit on the sidelines far

longer than had originally been predicted.

2015 saw the return ofstrategic mega-deals tothe oil and gas sector.

M&A activity in Russia continues to be curtailed by EU

and U.S. sanctions imposed in the wake of the Ukraine

situation, a factor that has seen Russian companies lookfor alternative sources of investment, notably from China

and India. Some transactions are still going ahead in

Europe, however, as we saw with Rosneft’s decision to

extend its investments in the German rening sector in

addition to its existing joint venture with BP.

By contrast, the U.S. continues to be a powerful engine

for new deals, on the back of the shale boom. We are

seeing increased domestic activity in the rening and

chemicals sector as producers redirect investment from

emerging markets back onshore to take advantage of

cheap and plentiful shale gas.

That trend will last only so long. If the market becomes

saturated, we could well see investment owingoutbound again into European and Asian markets.

This may provide an opportunity for thoseinvestors that are able to take a

view on the oil price.”

longer-term



7/21/2019 M&A Insights Q4 2015


Other shale-related infrastructure deals – notably pipelines

– are to the fore too in the U.S., as we saw with the

USD33bn acquisition of Williams by rival pipeline giant

Energy Transfer Equity. And we expect to see other

opportunities arise here, which should attract more

mainstream infrastructure investors.

That’s a trend in some other markets too. The UK’s

National Grid has, for instance, announced plans to sell

a majority stake in its gas transportation business in

2016. The deal is likely to attract interest from sovereign

wealth funds, pension funds and dedicated infrastructure

investors and is consistent with continued trading of

electricity and gas transmission and distribution assets

across Europe.

Such opportunities are becoming highly competitive,

as the infrastructure market more widely continues to

struggle with a now familiar problem – an excess of

capital chasing a scarcity of assets, compounded by

the hunt for predictable and risk-free yield.

FINANCIAL SERVICES

Fortunes turn

2015 saw a sudden and somewhat surprising returnof transactions activity in the nancial services sector

– the rst time we have seen a spike in FS deals since

the nancial crisis.

Much of that activity has been driven by signicant,

big-ticket consolidation deals in the insurance sector

and by a good level of activity in asset management.

But banking M&A continues to be driven mostly by

the regulatory agenda set since the crisis, with banks

continuing to slim down portfolios, dispose of

risk-weighted assets, and focus on their core

operations to meet tough new capital requirements.

Banks have several ways to complete this work and not

all of it involves M&A. Citi, for example, has disposed ofpoorly performing or risky assets but it has reduced its

exposure in some markets, such as Russia, in other

ways, reducing headcount or closing down operations,

for example.

We did see some signicant disposals during the year,

not least HSBC’s USD5.2bn sale of its Brazilian banking

operations to Banco Bradesco. Its ongoing efforts to nd

a buyer for its Turkish business, and the Portuguese

government’s struggle to nd a buyer for Novo Banco,

both clearly illustrate the ongoing difculties of selling

major European banking assets.

By contrast, the U.S. has seen a signicant spike

in banking transactions among mid-tier banks.Indeed, there were 29 such transactions in the

year’s busiest quarter, Q3, with all but two being

domestic rather than cross-border deals.

2015 saw a suddenand somewhat surprisingreturn of transactionsactivity in the nancialservices sector – the rsttime we have seen a

spike in FS deals sincethe nancial crisis.

One noticeable trend in banking is the continuing

refocusing of bank operations, particularly in global

investment banking where many of the big European

players are retrenching, leaving the big U.S. banks

– such as Citi, JP Morgan, Bank of America,

Goldmans and Morgan Stanley – in an increasingly

dominant position in the global market.

Separately, banks continue to sell whole loan portfolios,

really signicant multibillion deals that are increasingly

attracting the interest of PE funds.

UKAR, the UK state-owned holding company,

sold shares and assets in Northern Rock and related

disposals from UKAR are expected to continue in the

next few years. GE also disposed of several portfolios

of UK loan assets to various funds. Elsewhere in Europe

we are seeing continued activity in Spain and from the

middle of next year further loan portfolio sales are

expected to begin in Greece.

This is also part of the continued effort to sort out legacy

issues from the nancial crisis, as banks clear their books

of unwanted and/or poorly performing assets, such as

consumer loans, credit card portfolios and mortgages.

Banks are unlikely to buy these assets from eachother as they would have to hold capital against them

– PE funds have no such capital requirements to meet.

The dominant trend in the insurance market is for a

two-way split, with large general insurers on one side,

and niche players on the other. That inevitably means the

mid-sized operators are becoming increasingly squeezed

and we expect them to remain takeover targets for their

larger rivals, with plenty more scope for consolidation of

this kind.

Japanese insurers and trading houses have been a

dominant force in this activity, said to account for

around a third of all activity in a year that has been busier

than any other period since 2006. Mitsui Sumitomo’sGBP3.5bn acquisition of Lloyd’s insurer, Amlin,

was a standout deal in this regard and one that could

spark further bids for independent Lloyd’s insurers.


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Meanwhile, reform of the U.S. healthcare system

following the so-called Obamacare Act is driving

consolidation on an even grander scale, with several

mega-mergers during the year, including the giant

USD48.4bn Anthem/Cigna merger.

We see considerable scope for further consolidation in

insurance and expect asset management deals to

continue also. While banking transactions and more

general restructuring will continue to be driven by the

new, post-crisis regulatory environment for some years

to come, we expect pure banking M&A – more strategic

and adventurous in nature – to continue to return the

further we get from the height of the nancial crisis.

LIFE SCIENCES

Time to draw breath?

The extraordinary M&A boom in the life sciences sector

continued right to the end of 2015, with Pzer choosing

November to launch its giant USD160bn bid for Allergan

in what promises to be not only the largest ever deal in

pharmaceuticals, but also the biggest M&A deal of 2015

and the largest tax inversion on record.

Even before the move was announced, the life sciencessector had already established itself as the powerhouse

of the M&A market and the main foundation stone of

now record levels of transactions in 2015. With the

Pzer/Allergan deal taken in, the sector has seen

an astonishing USD630bn worth of deals in the

last 24 months.

Another growing areaof activity in 2015 has

been in the digital healthspace, with pharmacompanies starting tobuy in technology andtalent to help themdeliver all the promisesof digital medicine.

The generics market has been at the centre of thisactivity – and Allergan is a prime example of merger

fever with the current entity being the product of a string

of mergers, starting with the Actavis takeover of Watson.

Teva, on the other hand, bought out Allergan’s generics

business earlier this year in a USD40.5bn deal.

Ahead of that, Teva had abandoned its pursuit of

Mylan, which itself was tilting for Perrigo – a battle

nally lost in the autumn when its offer was rejected

by Perrigo shareholders.

The bigger question fornext year is whether the

life sciences M&A boomwill continue.

There are two forces at play in M&A in the generics

market – “generic plus generic” mergers are all about

economies of scale, while innovator and generic

mergers may achieve different results, likely linked

to diversication of portfolio and risk.

The Pzer/Allergan deal comes only nine months after

Pzer acquired biosimilar maker, Hospira, for USD16bn

and a little over a year after it was forced to abandon its

much bigger bid for the UK’s AstraZeneca in the face of

objections from the target company, shareholders and

UK politicians.

The latest deal is controversially driven by the tax

efciencies Pzer will realise by moving its HQ out of

the U.S. and adopting Allergan’s Dublin domicile,

reducing its effective tax rate from 35% to 18%.

It comes despite efforts by the U.S. authorities to close

so-called tax inversion loopholes and has only been

possible because Pzer has found a merger equal with

the right proportion of U.S. and overseas shareholders to

meet current restrictions. With political pressure building

on companies seeking to redomicile out of the U.S., it is

likely further action will be taken on tax inversion deals.

But the deal has industrial logic too, providing Pzer

with a cushion from the peaks and troughs of creating

innovative drugs with all the inherent risks of R&D

and perils of the patent cliff. Now the move raises the

question of whether Pzer, having bulked up its generics,

innovation and consumer interests is moving towards

the widely expected eventual break-up of the company

into three self-standing businesses.

The deal ts a pattern of activity in the market in recent

years with big pharma companies consolidating to cut

costs, to protect themselves from the patent cliff and nd

new ways to create shareholder value. But not all players

are following the same path. GSK and Novartis haveboth cast doubt on whether mega-mergers really create

value, preferring instead to pursue targeted so-called

“precision” M&A.



7/21/2019 M&A Insights Q4 2015


Meanwhile, failed deals in the market (for example

Mylan and Perrigo) show just how important it is to

demonstrate real shareholder value from proposed

transactions – shareholders are not always as tractable

as boards might hope.

Another growing area of activity in 2015 has been in thedigital health space, with pharma companies starting to

buy in technology and talent to help them deliver all the

promises of digital medicine. That has led to a spate of

cross-sector transactions, and we expect this to be a

continuing trend in 2016.

The bigger question for next year is whether the life

sciences M&A boom will continue. Some commentators

condently predict it will. But it would not be surprising to

see the industry take a pause for breath, not least while

recent deals are absorbed and bedded in, as pipelines

are restocked and, perhaps, mothballed projects are

brought back on stream in important areas like

antibiotic development.

Overall volumes of deals could remain healthy,

but it would not be surprising to see values decline

signicantly from their current phenomenal heights.

MINING

Outlook remains gloomy

With commodity prices continuing to fall, demand

– not least from China – also on a downward trend and

with a global market increasingly dogged by oversupply,

the mining sector has ended an already very gloomy year

by deteriorating still further.

The recent dramatic fall in share prices for the major

resources groups illustrates that position clearly.

Glencore has suffered more than most, its shares losing

a third of their value in September amid fears that the

slump in commodity prices may have further to run

and will prove to be prolonged. But its rivals have

fared only marginally better, with the market valuesof Anglo American, BHP Billiton and Rio Tinto also

all suffering steep declines.

The industry is feeling the effects of a glut of new

capacity brought on stream in the boom years when

commodity prices were rocketing ahead and when

the global market was being bolstered by seemingly

unending demand, notably from a fast expanding

Chinese economy.

All that’s changed now. Demand from China has fallen

steeply as growth slows. Copper and platinum are at

a 10 year low, iron ore continues to fall, and other bulk

commodities are following a similar track. Although some

capacity has been taken out of the market, the supply

and demand situation remains badly out of balance and

will probably require further cuts.

What little M&A activity we have seen has involved

moves to raise cash to shore up balance sheets –

Glencore, for instance, has made a number of disposals.

Elsewhere BHP Billiton has taken action to sort out its

sprawling commodities interests, spinning off certain

interests from South32 to add greater focus.

The question for players at all levels of the sector,

however, is how long they can limp on before we see

a spate of distressed assets coming on to the market.

Banks are giving the industry some breathing space. They seem loath to withdraw their backing from projects,

clearly recognising that, with the market in its present

parlous state, it’s better to hang on in the hope that

Mining-focused private equity funds and new

backed by funds, remain prepared to do deals.”

corporates


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PRIVATE EQUITY

Swing year

While levels of activity by PE funds are still not at the

level seen in the frenzied years before the nancial crisis,

2015 was undoubtedly a swing year for PE investment,

with funds once again going condently on the front foot

to complete new acquisitions having focused largely on

exits in recent years.

Despite huge amounts of repower to deploy and

ready access to debt nancing, funds remained in apretty defensive mood in the wake of the crisis and

right up to this year. They were reluctant to compete

with well-nanced strategic buyers, often prepared

to pay a premium to secure cherished synergies.

Auctions remained something of a no-go area for

funds, as a result.

That began to change in early 2015 and there has been

a progressive uptick in primary buyout activity as the year

has progressed, which not only indicates growing

condence but also mounting pressure to deploy the

record levels of dry powder that funds have accumulated

in the relatively quiet years.

Some sectors have been particularly buoyant in recentmonths, not least retail and consumer where we’ve

seen a raft of deals including R&R Ice Cream and PAI

Partners’ proposed joint venture with Nestlé to combine

their global ice cream businesses, and Exponent’s

proposed GBP400m acquisition of Photobox Group,

the digital personalised gifts and products business.

Signicant disposals continue too in this sector, not least

the GBP550m sale by Exponent and Intermediate

Capital Group of Quorn Foods, the international maker

of meat alternatives, to Monde Nissin of the Philippines.

And we’ve seen a good spread of secondary deals

between funds, not least two deals by PAI Partners

– the acquisition of A/S Adventure from Lion Capitaland the specialist outdoor sports retailer, Snow and

Rock Group, from LGV Capital.

Business services also remains a busy area for

transactions, including the acquisition by OMERS

Capital and AIMCo of Environmental Resources

Management, the international sustainability

consultancy, from Charterhouse.

This shift in activity towards a better spread of both

acquisitions and exits is mirrored in many north European

markets, with activity in France picking up particularly at

the top end of the mid-market, and with Germany and

the Benelux countries busy too. Italy and Spain are also

getting more active, although activity is focused onsmaller deals, but Scandinavia remains relatively quiet.

commodity prices will recover. The deals that are

being done tend to include structures where the

current owners may be able to protect themselves

against the risk of selling at the bottom of the cycle.

We have seen a number of distressed deals in recent

months but they still remain relatively few and far

between. Those that have occurred are focused at

the junior end (where companies lack the resources

to wait for an uptick in prices).

Other players looking to raise nance are managing to

make some headway. After months of seeing its share

price plummet, Lonmin, for instance, successfully got its

emergency USD400m rights issue away in November.

The commodities slump has hit Africa particularly hard,

and in some cases that has been compounded by

local factors. South Africa continues to be an uncertain

market, thanks to government intervention, continued

labour problems and frequent power disruptions, all of

which have hit the sector hard.

In the Asia Pacic region the sentiment is in line with

the global position. Mining companies have remained

focused on reducing both capital and operating costs,

conserving cash and resisting doing deals.

Mining companies haveremained focused onreducing both capitaland operating costs,conserving cash andresisting doing deals.

Mining-focused private equity funds and new corporates

backed by funds, remain prepared to do deals, but atvalues based on current commodity prices. To date there

have only been a limited number of deals where the gap

between the mining companies’ and the funds’ view of

value has been bridged. However, there are signs of a

slight increase in activity, such as the recently announced

acquisition by EMR Capital from Hong Kong listed

G-Resources of a 95% stake in the Martabe gold

and silver mine in Indonesia for USD1.05bn.

Deals are also being structured with deferred or

contingent payments, ‘clawback’ rights and similar

features to provide the vendor with some potential for

future returns as a sweetener to get the deal done at

the current values.Overall, however, there is little sign of a let-up in the

months ahead and we expect conditions in the

industry to remain depressed well into 2016.



7/21/2019 M&A Insights Q4 2015


The big funds areonce again partaking

in auctions, and it’s nolonger uncommon tosee potential buyersseeing the wholeprocess through.

We expect this to continue into 2016. After a year

of heightened activity, it’s hard to see any particular

economic issue that could halt it in its tracks,

although geopolitical events may cause disruption

and the summer’s volatility in Chinese stock pricesdid cause a brief, delayed slowdown in PE activity

in the Autumn.

The big funds are once again partaking in auctions,

and it’s no longer uncommon to see potential buyers

seeing the whole process through. Even if ultimately

unsuccessful, it shows that funds are once again

prepared to make that investment to explore

new opportunities.

As condence grows, deals are likely to become

more ambitious and, probably, more complex.

It’s becoming increasingly common, for instance,

to see a PE Fund joining forces with a strategic buyer

to pursue a buyout, with the fund able to bring more

innovative nancing to support the strategic buyer in

securing much prized synergies.

TELECOMS, MEDIA AND TECHNOLOGY

The regulatory challenge

No other sector, apart from life sciences, has driven

the M&A boom of the last 18 months like TMT, and

continued activity is on the cards as both regulation

and innovation drive players to re-examine their

business models and look for new avenues to growth.

With merger authorities having cleared a number

of xed-to-mobile convergence deals relatively

swiftly compared with mobile-to-mobile consolidation

deals, M&A dealmakers may focus efforts on

convergence deals.

Underlying the continued M&A activity in the telecoms

sector, and indeed M&A activity in the broader media

market, is a shift to platform-agnostic strategies basedon a “quadplay” offering. These models increase

customer “stickiness” for the operator, but also

respond to consumer demand for anytime/anywhere

access to content.

And there’s a knock-on effect – the value of content

providers is rising as operators seek access to the kind

of valuable content that will allow them to attract and

hang on to customers. BT’s investment in sports rights

and Netix’s investment in programming are part of this

trend, and we are likely to see more content providers

consolidating and being bought by operators.

Further, more profound regulatory change is on the way in

Europe thanks to the Commission’s Digital Single Marketinitiative. Although this may not have an impact on the

M&A market in the coming year, it promises to do so in the

Some sectors have been particularly

in recent months, not least retail and consumer.”

buoyant


25

7/21/2019 M&A Insights Q4 2015


Nokia’s announced China joint venture with Huaxin and

Chinese clearance of its merger with Alcatel-Lucent was

another, and Western Digital’s invitation to take on a

Chinese investor was yet another. On the internet space,the Chinese internet behemoths are expected to

continue to diversify their portfolio of businesses

even as they continue to expand internationally.

In the year ahead, we expect to see a growing number

of outbound content – or technology-based deals by

Chinese companies eager to exploit opportunities

both internationally and domestically.

That’s a continuation of another signicant trend

in 2015 where China’s growing inuence in the

technology M&A market became increasingly evident,

through outbound acquisitions, as an increasingly

powerful presence in antitrust regulation and as a

direct result of government policy to ensure Chinese

companies maintain control of strategic IT joint

ventures with inbound investors, as the HP/Tsinghua

deal demonstrated this year.

longer term by potentially redening such issues as access

to copyrighted content across borders which could disrupt

the way rights are sold on a national basis. The power of

big individual platforms, such as Google and Amazon, toconcentrate the delivery of services could also be challenged.

Another driver of activity in the tech sector is the

growing trend towards cross-sector acquisitions,

with, for instance, nancial institutions and pharma

companies buying tech companies to enter the FinTech

and digital health sectors. We are already seeing activity

in these areas as established players look at acquiring,

collaborating with or investing in innovative digital

companies to inject technology and skills into

their businesses. FinTech has already seen plenty

of activity in 2015, and 2016 looks to be even

busier – particularly in the booming payments

and peer-to-peer lending segments.

China’s impact on the technology landscape continues

to grow including with increased complexity and nuance.

China’s push for increased cybersecurity has meant that

its imposition of indigenous, cyber-reliable requirements

has created an additional complex element that is coupled

with Beijing’s increased role on global merger control

clearance as well as the very nascent beginnings of a

Chinese-like CFIUS regime. Cross-border joint venture

arrangements of different shapes and sizes are expected

to grow. The HP/Tsinghua deal was one form of market

leading response, Microsoft and IBM’s willingness to share

some form of source code was a recent development,

China’s push for increased cybersecurity hasmeant that its imposition of

cyber-reliable requirements hascreated an additional complex element.”indigenous



7/21/2019 M&A Insights Q4 2015


A global snapshot


27

7/21/2019 M&A Insights Q4 2015


A global snapshotTop 20 global outbound acquirers and inbound target markets

Number of

outbound acquisitions

Number of inbound

acquisitions

Note: these gures represent the total

number of deals announced between

1 January 2015 and 11 December 2015.

KEY

U.S.

Brazil

Canada

France

Switzerland

UK

Netherlands

Spain

Ireland (Republic)

Belgium

1231 816

516 549

326 200

279 248

166 75

137

152

105 74

73 87

17068

175



7/21/2019 M&A Insights Q4 2015


Norway

Germany

Japan

India

Italy

Top 20 Global Outbound Acquirers, FY 2015

Rank Country Volume

of deals

Value of

deals USDm

1 U.S. 1,231 416,057

2 UK 516 129,484

3 France 326 44,254

4 China 312 84,231

5 Japan 296 84,141

6 Germany 285 23,453

7 Canada 279 146,177

8 Hong Kong 245 53,197

9 Switzerland 166 42,036

10 Sweden 161 9,775

11 Netherlands 152 151,655

12 Singapore 126 11,008

13 Australia 115 21,333

14 Ireland (Republic) 105 50,373

15 Italy 89 12,719

16 Belgium 73 128,198

17 Norway 69 4,155

18 Spain 68 19,852

19 India 63 4,869

20 Denmark 52 5,457

Top 20 Global Inbound Target Markets, FY 2015

Rank Country Volume

of deals

Value of

deals USDm

1 U.S. 816 409,659

2 UK 549 357,507

3 Germany 339 44,105

4 China 266 37,123

5 Canada 248 19,935

6 India 232 21,862

7 France 200 52,401

8 Italy 190 42,417

9 Australia 183 46,015

10 Netherlands 175 28,902

11 Spain 170 27,365

12 Brazil 137 16,411

13 Sweden 116 20,122

14 Denmark 108 8,023

15 Hong Kong 107 31,334

16 Belgium 87 17,577

17 Norway 82 7,860

18 Switzerland 75 12,812

19 Ireland (Republic) 74 235,862

20 Singapore 71 14,077

Sweden

China

Hong Kong

Singapore

Australia

Denmark

266312 296

285 339

107245

161116

126 71

115 183

89 190

69 82

63 232

52 108


29

7/21/2019 M&A Insights Q4 2015


0.0000003.2857146.5714299.85714313.14285716.42857119.71428623.00000026.28571429.57142932.85714336.14285739.42857142.71428646.00000049.28571452.57142955.85714359.14285762.42857165.71428669.00000072.28571475.57142978.85714382.14285785.42857188.71428692.00000095.28571498.571429101.857143105.142857108.428571111.714286115.000000118.285714121.571429124.857143128.142857131.428571134.714286138.000000141.285714144.571429147.857143151.142857154.428571157.714286161.000000164.285714167.571429170.857143174.142857177.428571180.714286184.000000187.285714190.571429193.857143197.142857200.428571203.714286207.000000210.285714213.571429216.857143220.142857223.428571226.714286230.000000

Spain

Italy

Netherlands

Brazil

Australia

France

Germany

India

Canada

United Kingdom

I re l

0.0000003.2857146.5714299.85714313.14285716.42857119.71428623.00000026.28571429.57142932.85714336.14285739.42857142.71428646.00000049.28571452.57142955.85714359.14285762.42857165.71428669.00000072.28571475.57142978.85714382.14285785.42857188.71428692.00000095.28571498.571429101.857143105.142857108.428571111.714286115.000000118.285714121.571429124.857143128.142857131.428571134.714286138.000000141.285714144.571429147.857143151.142857154.428571157.714286161.000000164.285714167.571429170.857143174.142857177.428571180.714286184.000000187.285714190.571429193.857143197.142857200.428571203.714286207.000000210.285714213.571429216.857143220.142857223.428571226.714286230.000000

Switzerland

Canada

Brazil

Netherlands

Spain

Belgium

Italy

Germany

United Kingdom

USA

Un

00000.2857146.5714299.85714313.14285716.42857119.71428623.00000026.28571429.57142932.85714336.14285739.42857142.71428646.00000049.28571452.57142955.85714359.14285762.42857165.71428669.00000072.28571475.57142978.85714382.14285785.42857188.71428692.00000095.28571498.571429101.857143105.142857108.428571111.714286115.000000118.285714121.571429124.857143128.142857131.428571134.714286138.000000141.285714144.571429147.857143151.142857154.428571157.714286161.000000164.285714167.571429170.857143174.142857177.428571180.714286184.000000187.285714190.571429193.857143197.142857200.428571203.714286207.000000210.285714213.571429216.857143220.142857223.428571226.714286230.00000

00000.2857146.5714299.85714313.14285716.42857119.71428623.00000026.28571429.57142932.85714336.14285739.42857142.71428646.00000049.28571452.57142955.85714359.14285762.42857165.71428669.00000072.28571475.57142978.85714382.14285785.42857188.71428692.00000095.28571498.571429101.857143105.142857108.428571111.714286115.000000118.285714121.571429124.857143128.142857131.428571134.714286138.000000141.285714144.571429147.857143151.142857154.428571157.714286161.000000164.285714167.571429170.857143174.142857177.428571180.714286184.000000187.285714190.571429193.857143197.142857200.428571203.714286207.000000210.285714213.571429216.857143220.142857223.428571226.714286230.000000

229 130

161 3790 2888 25

57 2451 23

47 20

43 20

43 19

37 19

A global snapshotTop target markets for the world’s largest acquiring countries

U.S. – the world’s largest acquiring country UK

UK 60,755

Canada 13,087

India 12,482

Germany 18,275

France 12,952

Australia 9,142

Brazil 5,140

Netherlands 17,061

Italy 10,230

Spain 11,733

Value of deals (USDm)

U.S. 42,789

Germany 7,756

Netherlands 3,752

France 6,043

Australia 1,108

Ireland (Rep) 36,420

India 1,670

Italy 938

Spain 2,396

Canada 531


ChinaFrance

U.S. 23,677UK 2,636

Germany 587

Italy 2,072

Belgium 2,405

Spain 2,110Netherlands 1,221

Brazil 126

Canada 22

Switzerland 6


5235

352422

22

1297

7

Hong Kong 13,204U.S. 17,414

Australia 4,722

South Korea 1,385

Singapore 2,539

UK 1,906Germany 359

Canada 498

India 1,384

Taiwan 1,003


6457

2320

161210

98

8

*These gures represent the total number of deals announced

between 1 January 2015 and 11 December 2015.



7/21/2019 M&A Insights Q4 2015


7/21/2019 M&A Insights Q4 2015


Allen & Overy means Allen & Overy LLP and/or its affiliated undertakings. The termpartner is used to refer to a member of Allen & Overy LLP or an employee

GLOBAL PRESENCE

Allen & Overy is an international legal practice with approximately 5,000 people, including some 527 partners, working in 44 offices worldwide.

Allen & Overy LLP or an affiliated undertaking has an office in each of:

Abu Dhabi

Amsterdam

Antwerp

Bangkok

Barcelona

Beijing

Belfast

Bratislava

Brussels

Bucharest (associated office)

Budapest

Casablanca

Doha

Dubai

Düsseldorf

Frankfurt

Hamburg

Hanoi

Ho Chi Minh City

Hong Kong

Istanbul

Jakarta (associated office)

Johannesburg

London

Luxembourg

Madrid

Milan

Moscow

Munich

New York

Paris

Perth

Prague

Riyadh (cooperation office)

Rome

São Paulo

Seoul

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Washington, D.C.

Yangon

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