M&A and IPO: 2018 was a generally successful year


In 2018, despite numerous turbulences, the M&A and IPO markets saw increases in the total value of transaction. According to experts, this year should still be good on both markets.

At first glance, 2018 was a successful year on the global M&A market. In this decade a higher value of transactions was only recorded in 2015, which was a record-breaking year for the M&A market. According to the initial data from Dealogic, a company which specializes in collecting information about the capital market, the value of M&A transactions announced last year exceeded USD3.9 trillion and was more than 16 per cent higher than the year before.

The two main M&A markets in the world are the Unites States and Europe, which together accounted for nearly 70 per cent of all announced transactions. In Europe, the value of announced transactions increased by 35 per cent and exceeded USD1.1 trillion. Meanwhile, in the United States the value of transactions increased by about 16 per cent, to almost USD1.59 trillion. In Asia, which is the third largest market in the world, the value of transactions fell by 3 per cent last year, to almost USD747bn.

In the H1’18, the value of transactions in each of the quarters easily exceeded USD1 trillion, which — considering the business cycles on the M&A market — indicated that 2018 could be a record-breaking year. Everything changed, however, after the US President Donald Trump decided to start and then to escalate the trade war with China. The M&A market visibly slowed down in the H2’18, and the last three months of the year, when the value of announced transactions amounted to nearly USD803bn, ended up being the worst Q4 in five years.

Besides the trade war between the United States and China, the value of the market was also adversely affected by a further weakening of the foreign activity of Chinese overseas investment activities, the highly volatile sentiment in the stock markets, and the central banks’ withdrawal from quantitative easing of monetary policy.

The 10 largest transactions in Europe had a total value of nearly USD296bn (USD222iln excluding the debt of the acquired companies). This is 113 per cent (64 per cent) more than a year earlier. Three of the largest European M&A transactions concerned pharmaceutical companies, and two concerned enterprises from the broadly defined telecommunications sector.

Last year, European M&As with the highest total value — mainly due to so-called megadeals — were recorded in the health care industry (USD179.1bn), telecommunications industry (USD139.2bn) and the energy industry (USD133.4bn).

In Asia, there has been a significant increase in the number of takeovers of Indian companies by foreign investors. The transactions announced in that country last year reached the value of USD39.5bn. Their total value was more than twice as high as the year before and — for the first time in history — higher than analogous transactions in China, where foreign investors have been spending about USD33bn on acquisitions in each of the past three years.

In Poland investors are targeting family businesses

The Polish M&A market maintained the level of activity from 2017, with approximately 200 transactions announced. The market was dominated by the acquisitions of family businesses established after 1989, by industry or financial investors. The largest transaction — the acquisition of the bus manufacturer Solaris Bus & Coach by the Spanish CAF group — was worth (including the debt) approximately USD340.4m.

Other transactions with a value exceeding USD262m included the purchase of the commercial network Emperia Holding by Maxima Grupe (USD312m), the takeover of the main part of Raiffeisen Polbank’s business by BGŻ BNP Paribas (USD3.25bn) and the purchase of Eurobank by Bank Millennium (USD479.2m plus the payment of USD1.2bn of the acquired bank’s liabilities).

The tender offers for the purchase of shares of companies listed on the Warsaw Stock Exchange constitute a separate category of the Polish M&A market. Such tender offers are announced both by existing major shareholders, who have determined that the continued listing of the company on the stock market doesn’t make sense, as well as investors who would like to take control of a company listed on the stock exchange. Some of the tender offers are the result of another trend recently popular on the Warsaw Stock Exchange — the reviews of strategic options by companies.

The list of companies that were the target of a takeover last year includes Polenergia, controlled by Dominika Kulczyk, (an unsuccessful tender offer was carried out by PGE, which is controlled by the State Treasury; Dominika Kulczyk announced her own tender offer), Orbis (a tender offer was announced by the main investor, the French company Accor, which has been an industry investor of the Polish hospitality company for many years), Prime Car Management (a call was first announced by PKO Leasing, a company from the PKO BP group, and then by Hitachi Capital Polska), and ABC Data (a tender offer was announced by a consortium of financial investors with the participation of MCI).

There are fewer IPOs, but their value has grown

According to data from Dealogic, the value of the initial public offerings (IPOs) carried out globally during the past year reached USD209.4bn and was over 5 per cent higher than a year earlier. This increase was the result of a number of huge IPOs worth more than USD1bn each. The biggest offering, which was carried out by the Japanese mobile network Softbank, attracted investments reaching the amount of USD21.3bn. In terms of value, it was the second largest public offering in history after the IPO of the Chinese company Alibaba, carried out in 2014. The increase in the total value of IPOs was accompanied by a drop in their number. A total of 1,506 IPOs were held across the world, which is over 270 fewer than the year before.

Of the ten largest IPOs carried out last year, half took place on the Asian stock exchanges. Softbank debuted in Tokyo, China Tower (an operator of telecommunications towers), Xiaomi (a mobile phone manufacturer), and Meituan Dianping (an e-commerce platform) were introduced at the exchange in Hong Kong, while Foxconn Industrial Internet (a manufacturer of telecommunications equipment) was offered at the stock exchange in Shanghai.

According to data from Dealogic, thanks to the three big IPOs and the debuts of Chinese technology and biotechnology companies, the value of the initial public offerings on the main market of the Hong Kong Stock Exchange reached USD32.4bn and was the highest in the world. The companies making their debut on the New York Stock Exchange in the United States acquired USD31.5bn last year, while those choosing Nasdaq as their trading market sold shares worth USD29.2bn. In Europe the IPOs taking place at the Frankfurt Stock Exchange had the highest total value.

Last year only 111 IPOs were held on the Chinese stock exchanges in Shanghai and Shenzhen, which is over 300 fewer than the year before. According to data from the consulting company KPMG, their total value amounted to RMB137.9bn (USD20bn) and was 40 per cent lower than in 2017. The reduction in the number of IPOs was the consequence of actions undertaken by the Chinese stock exchange supervision authority. The supervisory body has tightened the selection criteria for the companies permitted to introduce their shares into public trading. Only 60 per cent of the submitted prospectuses were approved. As a result, many companies withdrew from their plans to carry out IPOs.

The past year was terrible for the IPO market in Poland. IPOs were only carried out by five companies, and the total value of these offerings amounted to less than USD78.6m. The value of the market would have been over twice as high if Danwood Holding, a manufacturer of wooden houses, hadn’t suspended its offering worth up to USD98.2m.

A slowdown is expected

On the M&A market the year 2019 will probably be weaker than the previous one in terms of the total value of transactions. This is primarily due to the decrease in the number of megadeals. Instead of pursuing mergers, large corporations will be looking for medium-sized transactions.

According to the authors of the report entitled “Global Transactions Forecast 2019: Dealing with the uncertainty”, published by the international law firm Baker McKenzie, which specializes in economic law, and the consulting and research company Oxford Economics, just like in the previous year, the first half of 2019 will be better than the second half. According Mergermarket report in Q1’19 the value of global M&A transactions was USD801.5, 15 per cent less than in Q1’18. In Europe the value of M&A deals was USD122.9 which is the lowest since Q1’12.

The M&A market will be affected both by politics, including the developments in the trade war between the United States and China, and events such as Brexit and elections, as well as the systematic withdrawal of central banks from the loosening of monetary policy. Decisions on acquisitions will be influenced by expectations of a possible economic slowdown, and perhaps even a recession.

Britain’s exit from the European Union — especially in the event of a hard one — will weigh on the M&A market not only in the United Kingdom, but also in Europe. The expected economic slowdown in the Eurozone will also have an impact. As a result, the value of transactions announced this year is likely to fall well below USD1 trillion.

The authors of the Baker McKenzie’s report expect a small increase in the value of M&A transactions in North America. The new free trade agreement between the United States, Canada and Mexico, signed at the G20 summit in Buenos Aires, could be conducive to such an increase.

According to analysts, 2019 should also be a successful year in Asia, in light of the anticipated consolidation among Chinese industrial companies, as well as a further increase in the value of acquisitions announced in India. It is expected that Private Equity funds, with large cash resources allocated for investments, will be very active in that region.

The M&A market in Asia could be influenced by the elections in Thailand, Indonesia and India. Analysts are pointing out that the election results potentially carry a number of risk factors. The materialization of these risks could cause a retreat from M&A transactions.

Technological unicorns among the candidates

The list of technological IPOs that take place in 2019 is pretty considerable. This week was a busy one on the IPO market, with Lyft and Pinterest as the leaders. Lyft joined the list of NASDAQ stocks, Pinterest has been listed on Thursday, April 18th, and Uber’s IPO is expected really soon.

Other companies that are also preparing for IPOs include Slack, which is a business-oriented instant messaging service valued at USD7bn, and possibly also Airbnb, which is a website that allows users to rent apartments (the value of the company is estimated at USD31bn). The company Palantir, which collects and analyses data, is also preparing to enter the stock exchange, probably in the second half of the year. It is valued at USD41bn.

If we were to add up the analysts’ estimates, the total value of American companies’ IPOs expected in 2019 exceeds USD100bn. The actual value will probably be lower, however. According to Baker McKenzie it could eventually reach USD60bn.

Whether the expected offerings will ultimately be carried out will depend, among others, on the stock market situation and the possible timing of a recession in the United States. For the time being, a recession is not expected to occur earlier than in 2020. As a result, companies whose main shareholders are venture capital funds are in a hurry with their IPOs. We should also take into account that — like in previous years — some offerings will be cancelled at the last moment because the company will receive an attractive acquisition offer.

In Europe, analysts and investment bankers have particularly high expectations for the German market. According to estimates, the shares of a dozen or so companies may be sold as part of IPOs, including several companies, which are currently functioning as internal departments of other corporations. Among others, it is expected that a public offering will be carried out by Traton, a Volkswagen subsidiary that produces buses and trucks (it owns brands such as MAN and Scania), and by a department of the Continental group involved in the design and production of vehicle powertrains.

The Polish IPO market should recover from last year’s low level, but it is still difficult to expect a boom. The list of companies planning a public offering isn’t very long. It potentially includes eobuwie.pl, an online retail company, the residential development company Murapol, as well as the producers and publishers of computer games, such as 1C Entertainment and BoomBit.

Experts are looking with optimism at the IPO market in Southeast Asia and are expecting Vietnam to lead in terms of the value of offerings, based on the local government’s continued policy of privatizing large state-owned enterprises by introducing their shares to the stock market.

According to the forecasts, this year will be very good for the IPO market in Hong Kong. The consulting company Deloitte predicts that the value of offers could range from USD23bn to as much as USD30bn. Meanwhile, KPMG estimates that this year’s IPOs could bring in about USD25bn. Just like last year, the final amount will depend on which major Chinese technology companies decide to debut in Hong Kong and which of them will choose to be listed in the United States.

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