Intralinks publishes a Deal Flow Indicator ("DFI") report on a quarterly basis with a view to predicting global M&A trends based on comprehensive tracking of early-stage M&A deals across the world. According to its recently released Q2 2014 DFI report, Intralinks predicts that 2014 is poised to end on a strong note for M&A activity. The report projects that 2014 will be the first year since 2010 to record a 6% – 10% increase from the previous year in worldwide M&A volume. This forecast is based on a strong 16% quarter-on-quarter ("QoQ") uptick in early-stage deal activity during Q2 2014. The DFI report predicts that these impressive results are indicative of a sustained global deal-making recovery, which has been elusive since the onset of the recession in the late 2000s.
The DFI report cites a number of macroeconomic trends that are likely contributing to this acceleration in the M&A market. The global economy appears to be growing on the whole (up from 3% global GDP growth in 2013 to a projected 3.6% in 2014) and should continue to do so for the mid-term. IPO activity has had a robust showing in the first half of 2014 with more announced for the following two quarters, making this the strongest year for IPOs since the financial crisis struck in 2008. While traditional bank lending is improving at an uneven rate in different countries, mid-sized businesses are increasingly accessing funding from alternative sources such as credit and bond funds to finance M&A transactions.
The summer months saw increased early-stage M&A activity in North America, Latin America, and EMEA (Europe, the Middle East, and Africa). Only the Asia-Pacific region saw an overall slowdown in M&A volume, which the DFI report attributes to a maturation of the region's economies following a prolonged period of rapid growth. The US in particular is leading this recovery with a 30% QoQ increase in M&A volume and a staggering 137% QoQ increase in value during Q2 2014. The current economic environment in the US is favourable to M&A transactions, with low interest rates, growing housing prices and shrinking unemployment.
Of the various industry sectors, pharmaceuticals contributed the most to the surge in M&A activity during Q2 2014 through a series of gargantuan transactions valued at up to US$14.2bn. The impetus behind many of the M&A transactions in this sector are the approaching patent expirations for a number of blockbuster drugs. This 'patent cliff' is particularly problematic for large pharmaceutical companies with only one or two such drugs driving their bottom lines.
Overall, the DFI report notes that the deal-making climate is significantly more optimistic than it has been in the past few years. All factors point to an across-the-board increase in confidence from businesses after a prolonged period of bearish attitudes since the financial downturn. The report hypothesizes that this result is not an aberration but the beginning of a sustained recovery in the M&A market.
The author wishes to thank, Markus Liik, summer student, for his assistance in preparing this legal update.
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