Cross-border transactions have emerged as a primary component of dealmaking in the mergers and acquisitions market, despite heightened geopolitical concerns.
In the first quarter of 2017, more than 40% of value was allocated to buying assets abroad, according to a new report from international professional services firm EY.
US-Western Europe resurgent
The key shift has been a resurgence of deals between the US and Western Europe, says EY. As executives place greater focus on North America and anticipate a pickup in US economic activity, companies are looking to tap into this higher growth to boost earnings.
Meanwhile, Western European assets will also be in demand, as indicators point to the region finally escaping a decade of stagnation.
US number one
The United States retains its position as the centre of global M&A, states EY. Conditions are set for another strong year in US dealmaking, with growth acceleration expected, executives and consumers expressing confidence and supportive capital markets.
US top sectors
- Diversified industrial products
- Real estate, hospitality and construction
- Automotive and transportations
China is now well established as the second most important market of global M&A and outbound Chinese M&A activity surged in 2016.
Figures from Thomson Reuters show that Chinese companies made a total of 912 acquisitions outside the country. These were worth a total of $222bn, more than double the equivalent amount in 2015 ($107bn from 625 transactions).
However, 2017 will be firmly centred on domestic combinations and inward investments. There has been a change in emphasis by the Chinese authorities to a more cautious, stability-focused agenda.
Some market players expect this will lead, inter alia, to a reduction in purchases of overseas football clubs by Chinese buyers.
China top sectors
- Automotive and transportation
- Mining and metals
UK bounces back
While the United Kingdom briefly fell out of the top 10 destinations for investment in the survey following the referendum on membership of the European Union, it has quickly rebounded as an investment destination in this EY Barometer.
The UK boasts many top companies in industries that are rich in intellectual property (IP), including pharmaceuticals, technology and consumer products. While this increases the ability of UK companies to buy abroad, it also increases the attractiveness of UK-based assets.
While the ongoing uncertainty surrounding the UK’s future relationship with the EU persists, it will not derail UK-involved dealmaking. Overseas companies will be looking to acquire top UK-based companies, says EY.
UK top sectors
- Power and utilities
- Media and entertainment