Protectionism, new technology giants, shareholder activism and interest from China will be the big factors influencing deals in 2018, business heads have claimed.
Senior executives and advisers surveyed from Europe, Asia and the US have said that political intervention in cross-border mergers and acquisitions (M&A) is on the rise globally, often against a background of protectionist rhetoric, according to research from City law firm Herbert Smith Freehills (HSF).
President Trump, who favours protectionism as a way to "Make America Great Again", divided opinion across geographies. In the US, 28 per cent of business heads thought his impact would be positive, 32 per cent were dubious about the president and 40 per cent thought his impact on M&A would be negligible.
Meanwhile as Brexit negotiations are unfolding, 52 per cent of UK-based respondents said that leaving the EU would have an adverse impact on M&A. The same percentage of respondents across all regions did not think Brexit would have a significant impact, while 35 percent thought it would have a negative impact and 13 per cent positive.
"Despite political surprises and uncertainties, corporate leaders are engaging with M&A and private equity's business model needs to continue to transact, notwithstanding the challenge of high valuations on the buy-side," said HSF partner Caroline Rae.
Activism and China
Activist investors would also be a significant factor driving M&A, according to the survey, following on from their rise in activity this year. A huge 69 per cent of respondents, consistent across all regions, said such shareholders would have an impact, as the activist phenomenon has spread from the US to Europe and even into Asia Pacific.
Earlier this year, activist investor Elliott applied significant pressure to AkzoNobel to agree to a merger with PPG Industries. The ensuing battle dominated much of the spring and summer.
In terms of the buyers and sellers, half of business leaders thought that "new technology giants" would produce the most significant deals. Just 23 per cent said traditional corporates would be responsible for M&A of note, with a slightly higher 26 per cent having faith in private equity.
By geography, Chinese buyers seem to be the ones to watch – despite tightened control on money going out of the country since late last year and a significant slow-down in their international activity in 2017.
This doesn't necessarily mean Chinese buyers will be welcomed – 78 per cent of respondents on the sell side would treat them with caution while 16 per cent would discount them entirely citing "execution risk".
To help the UK survive as it heads out into a globalised world alone, Rae said the country "needs to reaffirm its traditional openness to international investors".
"The challenge for the UK government is treading the fine line between those competing pressures," she added.