In BCG’s latest annual global M&A report, published on August 30, the consultancy firm’s team wrote that in periods of low growth and cheap financing, dealmaking is “one of the few available avenues to grow value”.
The boom of 2015, BCG said, demonstrated that “M&A has become a popular way for many companies to search for growth when organic growth opportunities are limited”, and took valuation levels to an all-time high.
That could have led to a bubble, the report said, given that global M&A value as a share of GDP had been rising for three years to above its long-term, historical average: “Similar developments, albeit at even higher levels, were precursors of the technology bubble’s bursting in 2001 and the financial crisis of 2008.”
Global announced M&A volume in 2016 stood at $ 2.2 trillion as of August 26, down from $ 2.9 trillion in the same period of 2015, according to data from Dealogic.
But although value contracted over the first six months of 2016, BCG pointed to “two underlying factors supporting continued M&A activity”.
The first is that private equity investors’ cash piles have been growing and those firms will need to invest.
The second is that investors in corporates are encouraging those companies to do deals. BCG wrote: “More investors than ever see strategic M&A as an attractive way to deploy capital in the current low-growth, cheap-funding environment.”
The report added: “Irrespective of whether overall M&A market activity remains at current levels, slows through 2016, or bounces back in the second half, so long as debt funding is relatively cheap and economic growth is low, M&A deals will flow.”
However, in a separate piece of research published earlier in August, Sebastian Raedler, the head of European equity strategy at Deutsche Bank, had a more bearish prediction for M&A activity in Europe specifically.
He said that despite cheap borrowing costs the high level of political uncertainty will put a damper on M&A in the region, adding “a meaningful increase in M&A activity is unlikely over the coming months”.