Mergers and acquisitions specialists are preparing for a pick-up in activity, according to the results of our seventh annual M&A survey, conducted in partnership with global law firm Clifford Chance.
Companies around the world have been building cash reserves during the past few years as they hold back investment due to the uncertain outlook, but the evidence from our survey is that the appetite for deals is returning as economic growth recovers.
After years of hoarding Japanese companies are sat on about $1.5 trillion of ready cash, according to Nomura, while US companies are holding roughly $1.8 trillion, according to data from the US Federal Reserve.
More than half of the respondents said that acquisitions by Asian buyers would increase during the coming 18 months, both in terms of intra-Asia and outbound M&A. That optimism chimes with a healthy level of interest reported by advisers.
The biggest thing holding back deals, according to the survey, are sellers’ unrealistic price expectations. However, the answers given to another question suggest that that gap is closing. We asked respondents, as we have every year, whether buyers or sellers would have the upper hand during the next 18 months. The responses were split 60:40 in favour of buyers, which is the closest it has been since we started the survey in 2007 and supports the idea that deal activity is set to pick up.
Chinese buyers are expected to be the most prominent during the next year, according to respondents. This makes sense, as some deal activity was put on hold during the leadership transition that culminated with the 12th People’s Congress in March.
With that now firmly in the past, Chinese acquirers should become much more visible. The question is whether they can successfully close major deals outside of the state-controlled natural resources sector.
Taken as a whole, though, Southeast Asia comfortably beat China as the expected target for inbound M&A, with close to half of all respondents picking out at least one country in the region as the likely top destination.