M&A set for drop in 2020 says Baker McKenzie

M&A set for drop in 2020 says Baker McKenzie
Economic conditions remain uncertain and that will affect M&A activity in 2020 according to a new report from Baker McKenzie.

The global law firm’s outlook, produced with Oxford Economics, shows a relatively strong North American deals market next year but Asia and Europe will suffer more from slower conditions and uncertainty.

Overall, global M&A is set to drop 25% in 2020 compared to 2019 with a 23% drop in IPO value.

Deals will total $2.1 trillion, down from $2.8 trillion in while the downward trend in IPO proceeds will mean a total $116 billion, down from an estimated $152 billion in 2019.

Bucking the trend will be North America is an outlier to the global trend with an expected $1.5 trillion in domestic and cross-border M&A by the end of 2019, an 8% decrease from 2018; and $1.1 trillion in deals for 2020.

“Coming off of 2018’s highs, dealmakers in North America have had a fairly busy 2019, even though cross-border transactions activity is down,” said Michael DeFranco, Global Chair of Baker McKenzie’s M&A practice. “Right now though, investors are becoming concerned about high valuations and rising corporate leverage, and we’ve seen the market respond less-than-favorably to a number of large deal announcements recently. Going forward, we’re working with clients on planning for a deceleration, though a recession in the U.S. is not likely in the cards.”

In Asia, M&A activity is estimated to drop 18% from $634 billion in 2019 to $529 billion in 2020, with IPO activity expected to total $36 billion, a 43% decline from 2018. 

Europe, where Brexit remains a challenge and Germany’s economy is slowing, the forecast predicts 2020 M&A activity to fall from $567 billion in 2019 to $427 billion in 2020, a 25% decline. 

“Global IPO activity has been slow overall this year with significant political issues weighing on markets. There were bright spots, including in the domestic US market, which outperformed its 2018 totals,” said Koen Vanhaerents, Global Chair of the Capital Markets practice. “We’re in for a turbulent 2020, but the appetite is still there for capital raising, and the pipeline, particularly in North America is quite robust. There is a light at the end of the tunnel in 2021, with Brexit resolving and European economies settling into a more stable place.”

Technology, investor activism and private equity take centre stage in pushing transactions forward next year.

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