Market turbulence does little to dampen M&A appetite

Market turbulence does little to dampen M&A appetite

A new survey from global law firm Herbert Smith Freehills shows that the uncertainty in Q1 2016 has not tempered companies desire for cross-border deals over the next three years

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.

Contact our experts

Stephen Wilkinson
Global Head of M&A
Tel: +44 20 7466 2038

Roddy Martin
M&A Partner (UK/US)
Tel: +44 20 7466 2255

Nicola Yeomans
M&A Partner (Asia)
Tel: +65 68688007

Andrew Rich
M&A Partner (Australia)
Tel: +61 2 9225 5707

Frédéric Bouvet
M&A Partner (EMEA)
Tel: +33 1 53 57 70 76

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After a record-breaking year for M&A last year, the start of 2016 has been more uncertain with the slowdown in the Chinese economy, depressed commodity prices and falling stock markets coupled with Eurozone instability all causing uncertainty in the global economy. However, despite these uncertainties, our two separate surveys, conducted in late 2015 and updated in 2016, demonstrate that the short to medium-term outlook for M&A as a priority focus for capital allocation by corporates remains extremely robust.

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