Despite the uncertainty that has affected world markets in Q1 2016, from the slowdown in China and severely depressed commodity pricing to the continued uncertainty in Europe, global businesses continue to prioritise their focus on M&A.
These macroeconomic factors coupled with unrest in the Middle East have all conspired to rattle investors at the beginning of 2016, wiping around US$8 trillion off global stock markets. However, according to a new survey from Herbert Smith Freehills, as the world economy falters, M&A remains the preferred strategy for driving growth for most corporates.
After a record-breaking year for global M&A and cross-border deals in 2015, the majority of survey respondents still believe that dealmaking will be the main path to growth in 2016 and beyond. The updated survey, conducted in February 2016, reveals that nearly half of respondents believe that recent market turbulence has had no impact on their M&A appetite for the year ahead (46%).
Moreover, only 3% said that market turbulence would significantly reduce their dealmaking appetite. Others see volatility as an opportunity – almost 20% now have an increased appetite for M&A, including one respondent, an Asia-based head of strategy in the energy sector, who says: “We see opportunity for us in the market and are looking to be aggressive in our M&A activity in the short term. We have huge capital in hand and this is the right time to buy more assets when the values could become super low because of the prolonged low oil prices.” This is in line with the expectation that distressed opportunities in the energy and mining sectors will be significant in 2016, particularly if prices stabilise.