Market Crossroads – Corporate activity trends

Today’s well-attended event hosted by Acuris brought together a panel of experts from across the Acuris titles to review the M&A, debt, private equity and infrastructure markets in 2017 and discuss their prospects for 2018.

The panel comprised of John West Managing Editor at Dealreporter and Mergermarket, Silvia Paparello, Head of Private Equity and IPO Content at Mergermarket, Nick Smith-Saville Head of EMEA Credit Research at Debtwire, Tom Williams, Global Editor in Chief, Inframation and was moderated by Michael Davies from Roxhill Media. Looking respectively at PE, M&A and debt the conclusions were fairly uniform; a record breaking 2017 and very possibly sustained growth for 2018. Infrastructure built a more conservative view of the past year and 2018.

In the Private Equity sector, 2017 saw record levels of buy outs since the crash of 2008 with 1,400 deals worth £149 billion. The UK saw a 34% increase in deals over 2016, including 7 mega deals valued over £1bn versus 5 mega deals the previous year. For 2018, the prognosis is that PE funds want to invest while sellers are keen to divest, attractive financing and stable conditions promoting this.

In M&A, deals were up 14% over 2016 with a value of €576, with many intra-UK and intra-Europe deals being made. In Europe, growth outpaced that of the UK with 2.4% growth projected, again stability spurring integration.

In the UK, while quieter, there was a 2.5% increase in deals over 2016 representing an increase of £60 billion. The UK market is dominated by the impact of Brexit. Foreign buyers are exploiting the fall in sterling for quality assets whilst consolidation is potentially a route to offset the any weakness in the economy resulting from Brexit.

The Debt Capital Markets also saw a record year with issuance in the loan market up 80%. Investors looking for yields were drawn to Collateral Loan Obligation (CLO) deals. Floating rate investments driving activity as being more attractive and fixed rates deals being less attractive. The Bond market was not as good. The outlook for at least the first half of 2018 remains positive.

The investment value in brownfield infrastructure projects increased by 52% or $87 billion in 2017, while transaction volumes remained flat. With $53 billion committed to infrastructure funds and not enough deals, valuations increased and this dynamic is predicted to continue through to 2018. Greenfield projects were more anaemic with some activity across France, Germany and Spain. For 2018 there is pressure on Government support and funds investment.

The panel, asked about similarities between 2007/2008 and 2017/2018 agreed that some dynamics (leverage) were similar but importantly there was increased governance, a healthier and more mature market that should avoid over leveraging the market. It is important though that PE funds have greater controls, compliance and a better equity story.

The panel debated the potential for defense M&A with a potential for the consumer sector to be impacted first. Poor December retail sales figures, a potential lack of consumer confidence if economic storms are forecast may lead to consolidation on the High Street. Financial services, with a combination of regulatory pressures and cost-cutting may also be open to consolidation.

With this outlook would inward investment in the UK be dampened? Much may depend on the Government and the balancing act between driving this investment and protecting UK companies through reformation of the Enterprise Act.

Shareholder investment was viewed as being on the increase. Some companies are going through their own streamlining processes driving the culture forward. The LSE/Deutsche Börse process showed how ready some activist shareholders are to publicly get involved. A positive effect is predicted for PE funds as carve outs from these processes bring potentially undervalued assets to the table with PE companies having great capability to handle these investments.

Finally, the team discussed Carillion where the main point was made that the issues with Carillion did not represent systemic risk and while there was contagion within contractors engaged with Carillion there was little threat of contagion across sectors.