The impact of the vote to leave the EU and the election of Donald Trump in the US will cause a reduction in mergers and acquisitions this year but activity will still grow over the next four years, global firm Baker McKenzie has predicted.
According to the firm’s Global Transactions Forecast, published today, 2017 will be a relatively ‘flat year’ for activity.
The report says the value of global M&A activity will fall to $2.5 trillion in 2017, down from $2.8tn last year. However, there will then be a ‘notable upswing’ to $3tn in 2018.
In the UK, it expects a ‘sharp drop’ in immediate activity. According to the report, M&A values will fall to £102bn in 2017, down 63% from £279bn in 2016. It expects this figure to rise moderately to £123bn by 2020. In June 2015 it predicted that UK M&A activity would peak at £218bn in 2017 and reach £164bn in 2020.
The vote to leave the EU and the election of Donald Trump as US president would continue to create uncertainty in the short term but that activity will pick up once clarity begins to emerge.
However, it predicts global IPOs will rise from $131bn in 2016 to $168bn in 2017. In 2018 and 2019 the IPO value will rise again to $275bn.
Tim Gee, M&A partner based in the firm’s London office, said: ‘Given Brexit’s impact on business confidence, we expect M&A values to fall by two-thirds in 2017 after numerous large deals in the first half of last year.'
He added that the potential for market volatility during Brexit negotiations is likely to impact the number of cross-border IPOs coming to market in London during 2017.
His words come despite reports that private equity company Blackstone was aiming to list its warehouse business Logicor, valued at £11bn, on the London Stock Exchange.
The more positive long-term forecast, according to Baker McKenzie, is based on an anticipation that EU and UK officials will make progress in establishing a new relationship in 2017, and that the new US administration will adopt a ‘pragmatic stance’ on international trade and immigration.
Paul Rawlinson, Baker McKenzie’s global chair, said: ‘We are clearly still in volatile times but deal-making is there to be done. Strong corporate balance sheets, cheap finance and moderate growth across markets and key sectors all point to an improving M&A run-rate later in 2017, after a cautious first quarter, and a significant uptick in 2018.’