Bouncing back

BY Richard Summerfield

M&A activity across a number of regions is expected to bounce back in the third quarter of 2019, according to the Q3 2019 issue of the Intralinks Deal Flow Predictor report.

The report forecasts the number of M&A announcements by tracking early-stage M&A activity, defined as new sell-side M&A transactions that are in preparation or have begun their due diligence stage. On average, early-stage deals are six months away from public announcement.

Undoubtedly, the year got off to a disappointing start. The worldwide number of announced M&A deals fell by 17 percent year-over-year in Q1 2019, according to Intralinks — the biggest such decline since 2002 and the sixth largest decline in any quarter for the past 30 years.

However, the outlook for Q3 appears to be much brighter. In North America, for example, M&A deals announced in Q1 2019 fell by 29 percent year-over-year. Yet looking forward, Intralinks’ predictive model anticipates that the number of announced M&A deals is expected to increase by around 3 percent year-on-year over the next six months. Europe, the Middle East and Africa are expected to see growth of around 1 percent. The strongest growth contributions are expected in the real estate, healthcare and technology, media and telecoms (TMT) sectors. France, Germany, Italy and Spain are expected to see the largest increase in M&A announcements.

The Asia-Pacific (APAC) region is forecast to see growth of around 4 percent. Within APAC, all regions except Southeast Asia and South Korea are demonstrating growth in their volumes of early-stage M&A activity. Looking forward, North Asia (China, Hong Kong), India, Japan and Australasia are expected to make the strongest contributions to APAC’s growth.

In Latin America, however, announced M&A deals are expected to fall by around 6 percent year-on-year. Any growth there is anticipated to occur in the materials, energy and power and TMT sectors. Brazil, Chile, Mexico and Peru, the largest economies in the Latin American region, are predicted to show year-on-year increases in M&A announcements.

The strongest growth in worldwide deal announcements is expected to come from the real estate, energy & power and financials sectors.

Report: Intralinks Deal Flow Predictor for Q3 2019

Brexit impacting investment in three in five UK manufacturers, reveals new report

BY Fraser Tennant

As we head toward what purports to be the endgame for the Brexit process, three in five UK manufacturers blame the imminent departure from the European Union (EU) for a slump in investment in their business, according to a new report by KPMG.

‘How to gain a competitive edge in UK manufacturing’, KPMG’s survey of 300 firms across a cross section of regions and manufacturing sectors, reveals 62 percent of UK manufacturers have delayed or paused investment as a result of Brexit. Automotive firms reported the hardest impact, with 78 percent indicating a slowdown in investment.

The report’s key findings include: (i) 90 percent of UK manufacturers report obstacles in realising their digitalisation strategies; (ii) talent and infrastructure are the top drivers for internal manufacturers to invest in the UK; (iii) 67 percent of manufacturers view technology disruption as a threat to their business model; and (iv) the availability of talent is viewed as the main obstacle to realising the benefits of industry digitalisation.

“Recent headlines have shown just how much the automotive sector in particular is feeling the pinch and this was echoed by our findings,” said Stephen Cooper, head of industrial manufacturing at KPMG UK. “Factors such as macroeconomic trade wars, regulation, technology and the fast pace at which the world is moving means that manufacturers must be more competitive and agile if they want to remain viable and thrive. Disruption is everywhere, but if viewed as an opportunity and navigated strategically, it can help businesses retain the edge the UK needs to have on its international peers.”

The KPMG report also found that over half of UK manufacturers (54 percent) are planning to relocate some elements of their operations abroad during the next three years.

“With squeezed margins, productivity challenges and a tumultuous geopolitical environment, it is little wonder that manufacturers are unsettled,” suggests Mr Cooper. “However, it is rarely ever one way traffic, so while some may be looking at other destinations, the UK has many redeeming qualities for manufacturers, so they must ensure that any moves being planned are for strategic reasons.”

That said, the report also found that almost half of UK manufacturers (44 percent) believe that the UK’s quality of infrastructure, talent and skills are drivers for international firms choosing to invest.

“The UK’s attractiveness to international firms should not be downplayed,” adds Mr Cooper. “For it to be sustainable in this environment, however, more can be done, such as further government support to strengthen infrastructure and international connections and a focused effort on strategic growth, productivity, skills and innovation.”

As Brexit, in whatever form, presumably approaches, UK manufacturing leaders are in no doubt as to what they must do to invest in their long-term future and stay competitive at a global level.

Report: How to gain a competitive edge in UK manufacturing

Chemicals dealmaking to remain robust despite headwinds

M&A activity in the global chemicals industry is expected to decline slightly in 2019 in the face of ongoing uncertainty, according to Deloitte’s 2019 Global Chemical Industry Mergers and Acquisitions Outlook.

The report suggests that rising interest rates, trade tensions and slowing economic growth will impact M&A activity in the sector, though the market will remain robust.

Global M&A volume in the chemicals space reached 600 deals in 2018, a decline of 5 percent compared to 2017, but total M&A value was still higher than in each of the years from 2010 to 2013. The value of M&A in the global chemicals industry rebounded to $72.4bn in 2018, up from $46.4bn in 2017.

The first quarter of 2018 was slow, although deal volume increased in each successive quarter in 2018, and deal values were also strong, with billion dollar-deals increasing in both quantity and value throughout the year.

Deloitte expects 2019 to be a challenging year, with growth in industrial production down and protectionism on the rise in many developed economies. However, the emergence of digitalisation is expected to transform the global chemicals industry and create additional M&A activity in the future.

“In 2019, we expect a modest decline in chemical industry M&A activity, but as demonstrated in the past, activity should still be strong despite global uncertainty,” says Dan Schweller, Deloitte Global M&A leader for the chemicals and specialty materials sector. “Underlying conditions for a strong M&A market remain intact – ample cash on-hand for buyers, availability of relatively cheap credit, and the desire to increase ROI for investors.

“Protectionism and trade concerns are weighing heavily on companies and global regulators continue to heavily scrutinize deals,” he continued. “As a result, we may see hesitancy towards cross-border M&A deals. However, the equity market declined in the fourth quarter, which may make high deal valuations – a limiting factor for M&A in 2018 – more palatable to investors moving forward.”

Report: 2019 Global chemical industry mergers and acquisitions outlook

US tech CFOs anxious over cyber security and economy, says new survey

BY Fraser Tennant

Cyber security and economic growth are the top concerns of US tech firms in 2019, according to a BDO survey published this week.

The  firm’s ‘2019 Technology Outlook Survey’, which features the views of 100 chief financial officers (CFOs), states that data privacy remains at the centre of the tech sector’s worries, with 87 percent of CFOs expressing a high or moderate concern about the issue. It also ranked third in the list of companies’ biggest business priorities for 2019, after scaling the business (37 percent) and product or service innovation (34 percent).

“Tech companies can expect to face many challenges in the year ahead,” says Aftab Jamil, assurance partner and global leader of BDO’s technology practice. “These include data breaches and cyber attacks, as well as continued regulatory uncertainty concerning trade and other policies.”

Additional findings from the BDO survey include the difficulties tech firms are having recruiting and retaining talent, adding new products or services, and pursuing mergers and acquisitions.

According to the CFOs surveyed, the implementation of the EU’s General Data Protection Regulation (GDPR) and the California Data Privacy Act in 2018 have further reinforced issues tech firms are facing.

“Regulatory bodies will continue to demand greater levels of accountability and transparency, and the race toward innovation will continue to speed up,” continues Mr Jamil. “As a result, tech companies will need to re-evaluate and fortify their operational and financial management in order to respond swiftly and nimbly.”

Despite these challenges, survey respondents expressed optimism about their business operations, with 84 percent expecting an increase in total revenue in 2019, at an average net change of 12.7 percent, and 62 percent anticipating an increase in their number of employees.

Respondents are also optimistic as to the impact of the new US tax reform law which is expected to have in impact this year. While 68 percent harbour high or moderate concerns about tax changes overall, 75 percent expect the reforms to be “favourable”, with 9 percent expecting them to be it to be “very favourable”.

“US tax reform will continue to have ripple effects on tech companies – and across all industries – for years to come,” said David Yasukochi, tax office managing partner and co-leader of BDO’s technology practice. “Tech companies will have to ensure constantly redefine their tax strategy to manage future risks and opportunities that come with the tech industry’s continued impressive growth.”

 Report: 2019 Technology Outlook Survey

UK tech sector growth slows as Brexit uncertainty bites, says new study

BY Fraser Tennant

Growth across the UK tech sector in Q4 2018 expanded at its weakest pace for three years, as the impact of Brexit and accompanying uncertainty began to bite, according to a new report by KPMG.

According to KPMG’s UK Tech Monitor Index, the sector experienced a difficult end to 2018, as business activity growth eased and new work remained subdued, with global trade, in addition to Brexit-related uncertainty, contributing to a loss of momentum in the final quarter of 2018.

Furthermore, although the Index, which measures the strength of business activity across the sector, remained above the crucial 50.0 no-change value at 52.4 in Q4 2018, this was down from 54.0 in Q3 2018 to the slowest rate of tech sector business expansion since Q4 2015.

“Our report reveals that political uncertainty has dented client confidence contributing to a slowdown in growth at the end of last year,” said Bernard Brown, vice chair at KPMG UK. “But, buoyant staff hiring and capital expenditure plans are still in place for 2019.”

Indeed, despite the subdued end to 2018, the KPMG Index reports positive signs, with tech firms indicating that they remain “highly upbeat” about their capital expenditure plans, although projections for demand growth have “softened”.

The tech sector’s more upbeat attitude to business growth is in marked contrast to the rest of the UK economy, with many companies stockpiling and holding off on investment decisions.

In terms of the tech sector, KPMG notes that strong R&D spending continues to drive confidence regarding new product launches, with a weak pound providing a competitive boost that will help achieve new export sales.

“This confidence is reflected in the statistic that almost 50 percent of UK tech firms intend to add jobs over the next year, whilst many traditional manufacturers are considering moving jobs offshore,” added Mr Brown. “This demonstrates the strength and resilience of the UK tech sector in the new digital economy.”

News: Tech Sector Growth Weakest for Three Years as Uncertainty Begins to Bite