In the first half of 2016, Global M&A in H1 2016 was down 26.6% as compared to H1 2015, with deal value falling from $1.81tn to $1.32tn. Regulatory changes around the world have caused M&A activity to shift from mega deals to more middle market and boutique acquisitions. Major global events, including the Brexit vote & the US Presidential election among others, have also caused a feeling of uncertainty around how the global economy will be impacted through the rest of 2016 and beyond.
What does this mean for recruitment within the US banking sector? The move to a greater volume of smaller deals calls for a change in approach and a different skill set required to succeed. Whereas mega deals favor professionals with experience in regulatory compliance, boutique transactions rewards bankers with entrepreneurial spirit and flexibility. Not only has this caused a shift in recruitment strategy, but it also has impacted the way in which bankers go about developing and refining their skill sets.
A global picture of M&A resilience
From a global perspective, M&A activity has remained buoyant, particularly in China. A recent regulatory change has allowed for multiple Chinese companies to bid for non-Asian firms worth over $2bn, whereas previously only a single, government-favored company was permitted to do so.
Major Chinese acquisitions went ahead in H1 2016: these included Chem China/Syngenta ($45.9bn); Tencent Holdings/Supercell Oy ($8.6bn) and Anbang Insurance Group/Strategic Hotels & Resort ($6.5bn). China has outpaced all previous annual totals for their European and US acquisitions. Outbound M&A in China has risen by 156.6% and 179.4% respectively in the last year.
Germany has also seen a return to strength in M&A after a weak performance in 2015. The European nation attracted $30.3bn in deals, predominantly in the industrial and chemicals sectors. Outbound deals were worth $51.4bn in H1, 90.7% above the combined H1 and H2 rate for 2015.
Excellent performance in US M&A sector
The US continues to perform well in M&A, with confidence outstripping levels seen in the rest of the world. In late 2015, some 57% of US executives told the EY Global Capital Confidence Barometer that they expected to pursue acquisitions in the next 12 months, compared to 50% globally; 50% said that acquisitions had been elevated to the boardroom as part of overall business strategy, compared to just 28% globally.
US M&A activity is being driven by strategic decisions at board level, including the need to acquire greater technological capability in order to maintain a competitive advantage in the market. 63% of executives in the US say access to tech is driving deal making across all sectors, compared to 31% outside the US.
The US M&A sector continues to be dominated by pharma, medical and biotech ($109.3bn; 19.4% market share); energy, mining and utilities ($88,2bn, 15.7% market share); business services ($82.2bn, 14.6% market share) and industrials and chemicals ($69.0bn, 14.5% market share).
A move away from mega deals?
While H1 2016 saw some memorable mammoth deals, including the acquisition of LinkedIn by Microsoft Corporation for $25.5bn in June, overall there is a discernible move towards a higher volume of lower-value deals.
This trend is in response to regulators taking a tough stance on mega deals. The $160bn attempt to merge Pfizer and Allergan in April 2016, which was thwarted by US tax authorities, and the blocking of a $25bn takeover bid by Halliburton of rival oil services group Baker Hughes are just two examples of this.[v]
In response, enterprises are opting to acquire businesses at an earlier stage of their development, a strategy less likely to attract regulatory attention. This move is challenging M&A professionals to build out their books with smaller deals, in a landscape less burdened by red tape.
The impact of Brexit on M&A
The UK’s popular vote to leave the EU did not trigger the worst-case scenarios feared by US bankers, which would have been a halt to global M&A activity. Nonetheless, UK M&A deals plummeted 50.5% from Q1 2016 to Q2 2016, from $38.9bn to $19.3bn. Buyouts of UK companies dropped 75.4% in H1 2016 compared to H1 2015.
While the outlook may be worrying for the UK, this instability does not appear to have slowed the pace of deals elsewhere. According to S&P Market Intelligence data, over $179bn in worldwide M&A deals has been reported since the June 24 Brexit vote.
These deals include a bid from Mondelez International to acquire The Hershey Company for $25.5bn and the National Bank of Abu Dhabi agreeing to acquire First Gulf Bank for $14.8bn in stock in a merger, representing the biggest ever M&A deal in the Middle East.
What a move to smaller deals means for recruitment
Working on large-cap deals between major businesses requires skill in understanding regulatory systems and working through the myriad compliance hurdles involved. To be effective in a more boutique M&A environment, professionals need to show a different skill set: an entrepreneurial spirit, having a larger appetite to take on risk, and greater adaptability.
While some experienced workers may prefer to remain in a big bank setting, the rewards can be considerable for those prepared to make the leap to a firm dealing in smaller-scale M&A. Rather than being another cog in a huge M&A machine, professionals need verve and initiative to seal deals and set the pace. It’s a high risk, high reward environment, averaging lower base pay but the opportunity to achieve greater remuneration through bonuses.
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