Corporate partners are forecasting a robust transactional market this year as the value of M&A deals has reached its highest level in eight years with greater use of debt finance and more benevolent market conditions, but dealmakers remain cautious about bumps in the road.
July started the third quarter with the highest value of M&A transactions since July 2007, with deals valued at $410bn coming in 49% higher than July 2014, according to stats from Mergermarket. Monthly M&A value for 2015 stood at $312bn which if such growth were to continue will beat 2014’s post-crisis high and potentially eclipse 2007’s peak of $ 3.7tn.
Consensus among the City’s corporate lawyers nevertheless remains cautiously optimistic. Travers Smith private equity partner Paul Dolman said: ‘We’re still someway off 2007… we can’t get carried away. But private equity as a proportion of M&A is about 80% by volume and value. Fundraising last year was at its highest levels in terms of amount raised since 2008. Debt levels, the amount of debt you can put into a deal, had fallen to 27% and now it’s back at 50%. It’s all incredibly positive. But we mustn’t forget that for every time there was a downturn in the economy, they all came immediately after M&A booms in 2000 and 2007.’
Deals made across the highest valued sectors included energy ($343bn), pharmaceuticals ($283bn), consumer ($228bn), technology ($213bn) and financial services ($208bn), which all saw a rise in value compared to the same period in 2014. Technology has been the biggest climber with deal value soaring 61% above last year’s tally.
Macfarlanes corporate head Ian Martin commented: ‘The equity capital market has been open, the private equity market is open and the corporates have plenty of cash war chests with which to make acquisitions. There’s a decent range of clients here and overseas. There is less activity in public M&A but the FTSE has been quite high so that will change. It’s more of a seller’s market than a buyer’s.’
Last year saw the Magic Circle lose ground in the global M&A rankings as Freshfields Bruckhaus Deringer, Linklaters, Allen & Overy (A&O) and Clifford Chance (CC) all lost places to US rivals, with London-headquartered firms badly impacted by a jittery European deals market that saw a large number of deals collapse. Freshfields, Linklaters, A&O and CC all slid down Thomson Reuters’ legal advisor rankings for the total value of deals completed during 2014.
Travers Smith senior partner Chris Hale added that short term bumps in the road can easily rock the status quo: ‘The dynamic is there’s a healthy amount of growth but there’s caution because of external factors that can knock things off course, examples such as the Greece saga and the UK’s European referendum on the horizon could impact M&A activity. These external things make us cautious.’