Global M&A Deals Fall, But Overall Value Rises

Global mergers and acquisitions (M&A) had a mixed first quarter with a slide in the number of deals announced but a rise in the overall value of deal-making activity, according to a report from Mergermarket said.

While the total number of deals announced fell by 17.9% versus the first quarter of 2016, overall deal value was up by 8.9% to a total of $678.5 billion. This dynamic fed through to lift average deal value to $403.4 million, CNBC reported.

The move towards larger deals reflects a reversion back towards trends seen in 2015–often referred to as the "year of the megadeal"–after a 2016 characterized by more of a focus on midmarket activity.

Key themes in evidence for the quarter were the spike in deal-making in the consumer sector, an enormous scaling back of activity from Chinese buyers and a drop-off of inbound European M&A.

The consumer sector recorded a whopping $136.1 billion of deal value spread over just under 400 deals and including three megadeals (valued at $10 billion or above). The figure would have been substantially higher still had Kraft-Heinz's aborted $155 billion hostile bid for Unilever—which was withdrawn after only two days in the face of substantial opposition—proceeded.

Enthusiasm for pairing up within the sector is largely owing to a search for revenue growth, Cedric Besnard, consumer equity analyst at Citi, told CNBC via email.

"The erosion in barriers to entry and the slowdown in emerging markets is forcing struggling multinationals into finding new avenues of growth….M&A is actually the quickest route—sometimes easier than innovation and less risky than extreme cost cutting," Besnard observed.

Political Headwinds

A clampdown by the Chinese state regarding capital outflows in general and the acquisition of foreign targets specifically had a severely dampening effect with outbound purchases by Chinese buyers dropping by a tremendous 86% (by value) compared to the same quarter last year.

Warnings from state regulators about the dangers and downsides of foreign buyouts have gathered pace over the past year.

"Overseas mergers and acquisitions can sometimes resemble a rose with thorns, you must be careful and you must do your due diligence," Pan Gongsheng, the head of the State Administration of Foreign Exchange and a vice governor of the People's Bank of China, told Shanghai Securities News in March, according to news agency Reuters.

This, in conjunction with increased scrutiny of Chinese buyers by regulators and politicians in target markets—due firstly to a high proportion of such deals being cancelled and secondly to increased political sensitivities—has prompted the steep scaling back of activity, both recently, and likely in the months ahead.

Cross-border M&A deals featuring European targets fell 39% for the quarter, partly due to the impact of China's caution and also due to buyers from elsewhere in the world staring down the barrel of Brexit and continent-wide election uncertainty and opting to take a more restrained approach. The exception to this was in the US where buyers of European targets hit a first quarter peak unseen since 2008.

One quarter down, three to go and the outlook for the rest of 2017 remains favorable despite significant political headwinds, according to Katharine Dennys, EMEA research editor at Mergermarket.

Meanwhile, the M&A industry is not the only sector to have shown signs of strength in the first quarter. Research company Preqin said on Tuesday that private equity funds had a bumper three months, raising a combined $89 billion which is edging towards 2008's all-time high.

"Looking ahead, there is cause to believe that 2017 may ultimately come to be a record fundraising year for the industry," said Christopher Elvin, the head of private equity products at Preqin.