Against a backdrop of protectionism, the failure of mergers and acquisitions has crossed since the beginning of the year their second highest level in ten years in the world.
The trade war unleashed by Donald Trump is beginning to destabilize the expansionist impulses of the big industrialists. According to Thomson Reuters, M&A failures hit the second highest in ten years globally this summer, to $ 553 billion since January.
“Executives are increasingly concerned with the time and complexity required to obtain approvals for large, transformative transactions. Trade disputes and industrial policies have a disproportionate effect on large deals says Hernan Cristerna, global co-head of mergers and acquisitions at JP Morgan. Our clients remain committed to doing business, but trade tension is clearly a negative trend that will affect mergers unless it is quickly resolved ”, he adds.
“Arms race “
In the midst of a showdown with the President of the United States, the Chinese authorities refused at the end of July to endorse the acquisition of the Dutch semiconductor manufacturer NXP by the American Qualcomm for 44 billion dollars. A response to Donald Trump’s rejection a few months earlier of Singaporean Broadcom’s $ 117 billion offer for American Qualcomm, in the name of ” national security “. The announcement of the transfer of domiciliation, from Singapore to California, of the chip giant, has not changed anything.
In the current tensions, “It is not surprising to see the Chinese authorities block an acquisition like Qualcomm’s on NXP when none of these activities are Chinese, Judge Mark Phelps, Head of US Asset Manager Alliance Bernstein. This “arms race” in the merger and acquisition approval process is likely to reduce cross-border deal activity as long as the rules are not clarified. “
Mega deals in tech aren’t the only ones targeted. In mid-August, in insurance, the Chinese OceanWide was forced to postpone for the sixth time its $ 2.7 billion merger with the American Genworth, announced at the end of 2016. While Alibaba had to give up Moneygram. First targeted by the US president, Chinese groups have thus been reduced to signing only 2 billion acquisitions since January in the United States, the lowest since 2012.
An opportunity for Europe
Europe, which has benefited from a certain “armistice” with the American president since the end of July, is benefiting from Sino-American dissensions. “Like Brexit, this is an exceptional opportunity for European groups to take advantage of foreign appetites”, considers Eric Lasry, partner of Baker McKenzie. Since January, the acquisitions of the United States towards Europe reached their highest in ten years at 155.9 billion dollars. Ditto for European buyouts across the Atlantic, which peaked at $ 166.5 billion.
But the rope is tight. Brussels has just given its approval to the creation of the world’s largest chemicals group with the 68 billion euro merger of the German Linde and the American Praxair, but the United States is threatening the operation. The two partners have already announced that if they had to give up more than 3.7 billion euros in turnover for competitive reasons, they would give up. Atos, which announced at the end of July the takeover for 3.4 billion dollars of the American Syntel, also saw its price fall on the backdrop, among other things, of concerns about the visas granted by the United States to employees in India.
The markets in expectation
Like the United States, these protectionist tensions push China into the arms of Europe. The amount of repurchases by the Middle Empire on the Old Continent crossed an all-time high since January, at 46.5 billion dollars. But relations are also strained there, after Germany and the United Kingdom have clearly toughened their tone.
The markets, justices of the peace of major M&A transactions, are on the waiting list. “Investors are likely to remain skeptical of mergers until regulatory merger deals are granted,” says Mark Phelps.