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Global Takeovers Drop to Eight-Year Low

Jan-Henrik Förster and Nabila Ahmed
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Global Takeovers Drop to Eight-Year Low

(Bloomberg) -- In the M&A world, autumn is rainmaking season. This year, it’s looking like a drought.

Takeover volumes since the start of September have fallen to the lowest level in eight years, according to data compiled by Bloomberg. The U.S. Labor Day holiday is typically the start of fall dealmaking, so that’s left bankers to worry whether CEOs will be able to shrug off the year’s anxieties and again consider transactions.

“Clearly we’re seeing a bit of softness in the M&A market,” said Dusty Philip, co-head of global of mergers and acquisitions at Goldman Sachs Group Inc. “There has been a marked increase in market volatility that started in August, and we’ve also seen somewhat weaker levels of corporate confidence. There’s real uncertainty related to trade and politics with both Brexit and the U.S. election.”

There have been about $201 billion in takeovers announced globally since Sept. 1, down 33% year-on-year. That’s the lowest level for that period since 2011, according to data compiled by Bloomberg.

And it isn’t just autumn jitters. Global takeover volumes have fallen 12% since the start of the year, to $1.8 trillion, with communications, utilities, energy and financial services deals down sharply.

There are a few reasons for the decline. Slow growth and political turmoil in Europe have kept U.S. acquirers away from the continent -- a traditional driver of M&A in the region.

Two situations showed how shareholders are skittish about endorsing big, cross-border transactions. Hong Kong Exchanges & Clearing Ltd. abandoned its unsolicited, 29.6 billion-pound ($36.4 billion) takeover bid this month for London Stock Exchange Group Plc, while tobacco giants Philip Morris International Inc. and Altria Group Inc. ended merger talks in September.

“There’s a lot of uncertainty in the world and that’s leading companies to take pause, re-evaluate their strategic plans and transactions and figure out what it is they want to do and whether or not now is the right time,” said Jim Langston, an M&A partner with law firm Cleary Gottlieb Steen & Hamilton LLP.

Looking Ahead

The numbers aren’t all bad, though. The $826 million in deals for acquisitions of U.S. companies by buyers in China and Hong Kong this year is likely to fall short of 2018’s $2.4 billion total, according to data compiled by Bloomberg. Still, the almost $5.1 billion spent by U.S. buyers on Chinese companies this year has already topped the $3.9 billion total for all of 2018.

Despite uncertainty, some bankers are optimistic that activity could pick up.

“My outlook for the second half is not that bad,” said Antonio Alvarez-Cano, head of UBS Group AG’s natural resources and health-care M&A teams in Europe, the Middle East and Africa. “Anecdotally, the pipeline for the second half and next year seems strong.”

Private equity firms are becoming more aggressive, looking at targets they haven’t previously considered, he said. Buyout firms also have ample amounts of uninvested capital and access to favorable financing, driving a steady stream of U.K. take-private transactions.

The value of taking U.K.-listed companies private has more than tripled over the past 12 months to 14 billion pounds, according to advisory firm BDO LLP. The number of deals involving private equity firms has risen in the U.S. and globally, it said.

Brexit talks have shifted in a productive way and both sides in the U.S.-China trade war have shown willingness to talk instead of escalating matters further, David Folkerts-Landau, chief economist at Deutsche Bank AG, said in a research note Tuesday.

“There has been a meaningful pick up in M&A activity over the last few weeks,” said Alison Harding-Jones, Citigroup Inc.’s head of M&A for Europe, the Middle East and Africa. “Now this may or may not lead to deals but there’s a lot of pressure on boards to find growth. Financing is cheap and certainty around Brexit will help.”

(Updates with U.S.-China cross-border deals in ninth paragraph)

To contact the reporters on this story: Jan-Henrik Förster in London at jforster20@bloomberg.net;Nabila Ahmed in New York at nahmed54@bloomberg.net

To contact the editors responsible for this story: Ben Scent at bscent@bloomberg.net, ;Liana Baker at lbaker75@bloomberg.net, Matthew Monks, Michael Hytha

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