As companies brace for the impact of last year’s political shocks and looming elections this year, global appetite for mega-mergers may slow amid the prospect of increased protectionism.
The biggest transactions mostly involved buyers and sellers from different countries: Bayer AG’s acquisition of Monsanto Co in the US, China National Chemical Corp’s bid for Syngenta AG and Softbank Group Corp’s purchase of ARM Holdings PLC. Cross-border deals accounted for more than half of acquisitions larger than US$25 billion announced this year, according to data compiled by Bloomberg. They also made up nearly half of the US$3 trillion in total announced deals, the data show.
However, the sources of international mergers and acquisitions are becoming more inward looking and protective, and it is still unclear how political changes will affect businesses. Chinese firms are facing regulatory scrutiny abroad, with growing opposition in the US and Europe, and restrictions on megadeals at home.
In the West, the US elected Donald Trump as its next president — a decision with potential implications for US companies’ tax bills and the reception that bidders, especially Chinese, could get when they target assets in the country. In the UK, which voted to leave the EU, British Prime Minister Theresa May has said the country needs a “proper industrial strategy” that could be used to defend strategic industries and companies like drugmaker AstraZeneca PLC.
This year, Europe will also see elections in the Netherlands, France and Germany that could unseat incumbent leaders and strengthen populist, nationalist movements across the continent. These votes could have ramifications for the EU and euro zone, causing more instability and volatility in the currency bloc.
Here’s what is on the minds of dealmakers as they head into 2017.
1. REGULATION
The largest acquisitions already saw a decline last year. There were 13 deals above US$25 billion announced in 2016, slightly below a year earlier, according to data compiled by Bloomberg. The value of total transactions announced is down about 18 percent from last year.
“Lack of confidence is never good for dealmaking,” said Hernan Cristerna, global co-head of mergers and acquisitions at JPMorgan Chase & Co in London. “If CEOs are trying to gauge the benefits of a big deal and don’t know how the regulatory environment will play out, some may be hesitant to push the button.”
More than US$580 billion in deals were terminated last year, according to the data, some of which can be attributed to a stricter regulatory landscape. The largest failed deal was Pfizer Inc’s US$160 billion attempt to take over rival drug maker Allergan PLC. That was quashed when US regulators proposed new rules to limit so-called tax inversion deals, in which a company gets an address in a more favorable tax regime as part of an acquisition.
The US also blocked deals that it saw as a threat to its national interests, including Chinese-backed Grand Chip Investment GmbH’s plan to buy German chipmaker Aixtron SE, which supplies US defense companies.
The outcome of the US elections and Brexit will result in more protectionism in both countries, said Ying Zhang, associate dean for China at the Rotterdam School of Management at Erasmus University.
There could be “huge resistance” to foreign acquirers as a consequence, she said.
2. ASIA
China, whose companies spent more than US$200 billion on overseas deals last year, more than double last year’s record, is planning curbs on its companies’ foreign acquisitions that will last until September, people with knowledge of the matter said last month. That includes barring most investments of US$10 billion or more.
“The impact of capital-control rules introduced in China has to be assessed, as Chinese companies were among the most active drivers of M&A in the last few years,” said Thomas Piquemal, global head of mergers and acquisitions at Deutsche Bank AG in London.
Japan, which could fill the gap left by Chinese firms’ clipped merger ambitions, represents “the greatest cross-border opportunity,” JPMorgan’s Cristerna said. A shrinking population and stagnant economy at home have pushed businesses in the country to look for growth abroad, he said.
Japanese companies agreed to spend more than US$84 billion acquiring foreign assets last year, up 23 percent from 2015. Softbank’s US$32 billion purchase of ARM Holdings in the UK was the largest of those deals, while brewer Asahi Group Holdings Ltd was one of the most acquisitive, snapping up European assets sold off as part of Anheuser-Busch InBev SA’s merger with SABMiller PLC.
3. PRESIDENT TRUMP
As Trump prepares to take office in 2017, several of his proposals could have sweeping implications for companies that want to do business and deals in the US.
He has called for tax breaks that could lead to the repatriation of US companies’ funds held overseas and lower tax bills. That could free up billions of dollars for mergers and acquisitions in the country, as well as dividends and share buybacks.
“This would free up cash for M&A and fuel a wave of deal activity,” LionTree Advisors chief executive officer Aryeh Bourkoff said in a year-end letter to staff. “Repatriation could be of particular benefit to Apple, Microsoft, Alphabet, Cisco and Oracle, which are holding a combined estimated US$500 billion in cash overseas.”
Trump’s hard line on China could also lead to increased scrutiny of investments from the country into the US. He has nominated former Goldman Sachs Group Inc partner Steven Mnuchin as Treasury secretary, a post that would make him chair of the Committee on Foreign Investment in the US, which has the power to review foreign takeovers of US companies and, if its mandate is broadened, could be used as a tool raise barriers if it opens a path to reject Chinese investments.
Trump also picked Peter Navarro, a University of California at Irvine economics professor and a critic of China’s trade practices, to lead the newly formed White House National Trade Council.
OPTIMISM
Still, some upheaval has created opportunities for buyers. Foreign acquirers spent more on European assets last year than they have since at least 1990, according to data compiled by Bloomberg, taking advantage of weaker currencies that cheapened deals.
And going into 2017, some in the industry remain optimistic.
“Trump’s election has injected enormous confidence into the markets, and nothing is more important to M&A than confidence in the future,” said John Reiss, head of the global mergers and acquisitions practice at law firm White & Case LLP. “We remain very optimistic for 2017 dealmaking and expect it to be more active than in 2016, but less so than 2015.”
US companies especially could be big beneficiaries.
“If Trump continues to be perceived as willing and able to implement his pro-business agenda, it will increase the ability of US companies to make acquisitions around the world, and increase the attractiveness of the US to non-US acquirers,” Reiss said. “Overall, the US will be perceived as a relatively good place to do deals.”
Concerns that the US might abandon Taiwan are often overstated. While US President Donald Trump’s handling of Ukraine raised unease in Taiwan, it is crucial to recognize that Taiwan is not Ukraine. Under Trump, the US views Ukraine largely as a European problem, whereas the Indo-Pacific region remains its primary geopolitical focus. Taipei holds immense strategic value for Washington and is unlikely to be treated as a bargaining chip in US-China relations. Trump’s vision of “making America great again” would be directly undermined by any move to abandon Taiwan. Despite the rhetoric of “America First,” the Trump administration understands the necessity of
In an article published on this page on Tuesday, Kaohsiung-based journalist Julien Oeuillet wrote that “legions of people worldwide would care if a disaster occurred in South Korea or Japan, but the same people would not bat an eyelid if Taiwan disappeared.” That is quite a statement. We are constantly reading about the importance of Taiwan Semiconductor Manufacturing Co (TSMC), hailed in Taiwan as the nation’s “silicon shield” protecting it from hostile foreign forces such as the Chinese Communist Party (CCP), and so crucial to the global supply chain for semiconductors that its loss would cost the global economy US$1
US President Donald Trump’s challenge to domestic American economic-political priorities, and abroad to the global balance of power, are not a threat to the security of Taiwan. Trump’s success can go far to contain the real threat — the Chinese Communist Party’s (CCP) surge to hegemony — while offering expanded defensive opportunities for Taiwan. In a stunning affirmation of the CCP policy of “forceful reunification,” an obscene euphemism for the invasion of Taiwan and the destruction of its democracy, on March 13, 2024, the People’s Liberation Army’s (PLA) used Chinese social media platforms to show the first-time linkage of three new
Sasha B. Chhabra’s column (“Michelle Yeoh should no longer be welcome,” March 26, page 8) lamented an Instagram post by renowned actress Michelle Yeoh (楊紫瓊) about her recent visit to “Taipei, China.” It is Chhabra’s opinion that, in response to parroting Beijing’s propaganda about the status of Taiwan, Yeoh should be banned from entering this nation and her films cut off from funding by government-backed agencies, as well as disqualified from competing in the Golden Horse Awards. She and other celebrities, he wrote, must be made to understand “that there are consequences for their actions if they become political pawns of