Return of global megadeals could see biggest deal boom since financial crisis

With the return of megadeals, mergers and acquisitions could see a record year of activity this year, with global dealmaking reaching $2.12trillion so far in 2018. A wave of megadeals has seen the average deal size at its highest since 2015, hitting $1.07billion.

  • Global M&A activity hits $2.12trillion
  • M&A activity back to pre-crisis levels
  • Asian companies taking a greater portion of deal making activity

Analysis published by Linklaters today shows that whilst the global value of M&A deals dropped off during the global financial crisis, falling from over $3 trillion in both 2006 and 2007 to less than half that amount in 2009, activity is now back to pre-crisis levels. Between 2010-13, the annual value remained constant at around $2 trillion. Since 2013, the annual value has been more than $3 trillion each year – similar to pre-crisis levels.

Finn Griggs, Corporate partner at Linklaters, says:

“In the immediate aftermath of the global financial crisis, a lot of activity was driven by banks and other corporates divesting and shoring up the balance sheets. We’ve come through that period to a place of renewed confidence in the markets. If deal volumes continue at their current level, we could see 2018 turning out to be a record year.”

Analysis shows that Asian companies have taken a greater portion of deal making activity over the last ten years, involved in 35% of M&A deals this year, up from 23% in 2008. US companies were slightly behind, involved in 34% of M&A this year, up from 27% in 2008. However, the picture is slightly different for European and UK companies, with their involvement dropping to 25% from 39% ten years ago.

Griggs says: “The financial crisis affected different markets in a variety of ways, with some recovering quicker than others.”

However, she points to looming trade wars, regulatory pressures from Chinese authorities, and geopolitical events dominating the agenda in the US, Europe and the UK. She says: “There are challenges on the horizon. So, whilst we may have come through a decade of significant change and upheaval, this isn’t the new normal. There are events just around the corner that could quite quickly reshape everything.”

She also highlights that companies are operating in a world loaded with record levels of debt. Linklaters’ analysis shows that global debt reached a historic peak of $177 trillion in 2017 – a 50% increase on debt levels a decade earlier. Overall debt levels now represent over twice the world’s Gross Domestic Product at 217%, well above the level in 2007.

Griggs says: “There is a question of what happens when interest rates return to normal levels. We have learnt lessons from the financial crisis and need to ensure that they remain front of mind. It would be risky to become too accustomed to this low interest rate environment.”