8th ICIS World Surfactants Conference – Innovation Seminar Hyatt Regency Jersey City, USA May 10, 2018 Mergers and Acquisitions: Megatrends Shaping the Future M A Y 2 0 1 8 | P R O P R I E T A R Y
Global M&A
The global M&A market witnessed 38,957 deals in 2017, corresponding to a deal value of US$3,458 BN and a median EV/EBITDA multiple of 9.5x ; the Asia Pacific (APAC) region accounted for the largest share geographically 3
APAC accounted for the largest share of the global M&A volume at 39.5% and 30.2% of the deal value, followed by Europe and the U.S. Median EV/EBITDA Deal Volume Deal Value (US$ BN) 10.0x 11.2x 10.8x 10.5x 11.3x 8.8x 10.2x 9.2x 8.9x 9.0x 13,799 12,905 12,854 13,500 5,000.0 14,000 4,000.0 4,500.0 3,500.0 13,800 13,000 4,000.0 12,198 13,393 13,337 3,000.0 13,600 11,621 11,935 3,500.0 12,500 2,500.0 3,000.0 13,400 13,106 13,076 2,000.0 12,000 2,500.0 13,200 2,000.0 1,500.0 2,198 11,500 2,014 1,500.0 13,000 1,000.0 1,707 1,706 1,295 1,000.0 1,174 1,155 11,000 1,109 1,223 12,800 956 500.0 500.0 12,600 0.0 10,500 0.0 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 • European deal-making is slated to • The recently enacted tax legislation is slated to boost deal continue outpacing the U.S. on the back of a stronger economy activity and greater cooperation Europe Asia U.S. Pacific 1,485 1,453 1,399 15,376 1,600 200.0 16,000 2,000.0 14,692 14,723 180.0 1,800.0 15,500 1,400 1,054 1,019 160.0 1,600.0 15,000 1,200 140.0 1,400.0 14,500 13,119 13,496 1,000 120.0 1,200.0 140 136 14,000 1,348 800 100.0 1,000.0 1,174 112 13,500 80.0 1,043 800.0 Latin 600 90 13,000 88 60.0 600.0 400 12,500 680 40.0 660 400.0 America 200 20.0 12,000 200.0 - 0.0 11,500 0.0 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 • Chile, Brazil, and Mexico are • APAC’s market will be driven by predicted to emerge as the top China and Japan investment destinations • Easing of macroeconomic The U.S. is expected to continue restrictions and OBOR project will • being the largest foreign investor boost deal activity Source: William Blair Merger Tracker Q4 2017 4
As global equity markets reached a new high, the median EV/EBITDA multiple remained relatively stable, nearing pre-financial crisis days Global M&A – Median EV/EBITDA • Companies have become more cautious in pursuing 10.5x 10.0x large strategic deals as they 9.9x 10.0x struggle to find additional 9.5x 9.6x synergies to justify 9.7x 9.5x 9.5x significant takeover 8.8x 9.0x premiums 9.0x 8.5x 8.6x 8.2x • Owing to easy availability of 8.0x 7.6x cheap financing and doubts 7.5x over equity market 7.0x valuations, all-share deals 6.7x dropped to a low in 2017, 6.5x especially in the U.S. 6.0x 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Source: William Blair Merger Tracker Q4 2017 5
Private Equity (PE) sponsors globally contributed 20.8% to the deal volume and 36.7% to the deal value in 2017, with U.S.- based PE being responsible for 41.1% of the total global PE deal value and 47.7% of the deal volume 6
2017 witnessed global PE deal volume decline in U.S., dampened by high valuations and a relative lack of quality assets Global PE – By Deal Volume and Value • With entry prices for assets Deal Volume Deal Value (US$ BN) remaining high and a 9,000 8,800 8,400 10,000 2,000 8,100 significant quantum of 7,300 9,000 1,800 7,000 7,000 6,700 8,000 1,600 6,100 5,800 capital competing for deals, 5,500 7,000 1,400 6,000 1,400 1,200 4,100 capital deployment is to 1,270 5,000 1,000 1,170 1,110 1,040 4,000 800 likely to continue posing a 910 300 820 3,000 600 710 710 700 2,000 400 570 challenge in 2018 1,000 200 0 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 U.S. PE – By Deal Volume and Value Deal Volume Deal Value (US$ BN) 4,348 4,254 • ~89.0% deal volume in the 4,228 5,000 1200 3,864 4,500 3,568 3,525 3,406 U.S. happened with deal 1000 4,000 3,139 2,840 2,770 2,774 3,500 800 values ≤ US$500 MN 3,000 821 1,893 2,500 600 2,000 591 555 520 522 400 142 1,500 457 436 370 1,000 338 316 200 289 500 0 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Source: McKinsey Global Private Markets Review 2018; Pitchbook 7
Median EV/EBITDA multiples rose to their highest in the past decade, owing to multiple funds competing for the same transaction PE – Median EV/EBITDA • The primary reason behind the 14.4% y-o-y increase in global deal size is Global U.S. attributable to growing 10.5x 10.5x multiples 10.0x 10.7x 9.5x 9.6x 10.0x 9.0x 8.9x • Consequently, GPs are 8.4x 9.3x 9.0x 9.2x 8.3x 8.3x making fewer investment 9.0x 8.1x choices, zeroing in on targets 8.5x 8.0x 7.4x 8.2x where they can still earn an 7.9x 7.9x 7.4x attractive IRR; however, 7.0x 7.0x what constitutes attractive is 6.8x 6.0x undergoing revision amid the current environment 5.6x 5.0x 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Source: McKinsey Global Private Markets Review 2018; Pitchbook 8
372 PE funds closed in 2017, with the aggregate capital being raised totaling US$325.9 BN globally; while in the U.S., 247 PE funds were closed, with US$233 BN being raised 9
Global PE dry powder was worth US$848.3 BN in 2017 – quantum of dry powder indicates a significant opportunity for the M&A industry Global PE Dry Powder – By Value and Tenure • PE dry powder has been increasing at an average annual rate of 8.5% since Dry Powder (US$ BN) Years of Dry Powder 2011 848 7.0 900 • Net addition to dry powder 5.8 was 47.5% of the total 800 693 6.0 677 fundraising for 2017 652 640 629 624 700 600 565 5.0 531 521 513 600 • A continuation of this trend 4.8 4.0 500 over the coming years is 4.2 3.9 3.9 3.7 3.7 3.7 3.6 likely to be troubling and 400 3.0 3.1 3.0 has the potential to force 2.8 300 2.0 many GPs to further reduce 200 their hurdle rates and 1.0 100 deploy capital in situations - - 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 they otherwise would not Source: Pitchbook 10
In the near term, global M&A is also expected to be defined by the U.S. tax reform , increase in cross-border M&A activities (especially the revival of China’s outbound M&A ), and emergence of cross-sector convergence (especially technology convergence) 11
Enactment of the Tax Cuts and Jobs Act of 2017, which calls for a 21.0% U.S. corporate tax rate and the mandated repatriation of ~US$1.5–2.0 TN of overseas cash, is expected to have a significant impact on global M&A Impact on Corporate M&A Impact on Financial Sponsor M&A • Increased power, quality, and liquidity of • Increased cost of capital for acquisitions corporate earnings = More stimulating reliant on debt financing investment and M&A environment • This will make PE firms less competitive, with cash-rich strategic players, especially if interest rates rise significantly • High earnings = Partially offset impact of • Factors likely to mitigate the impact of continuous high valuations reduced deductibility include the unlimited ability to carry forward disallowed interest expenses • Lower taxes = Increase the number of non-core asset sales and corporate • Improved bottom lines for planned divestitures, and add to the supply of targets due to lower tax rates available targets • Step up and immediately expense some costs under certain transaction structures, driving up deal volume 12
Chemical M&A
The global chemical market witnessed 1,127 M&A deals in 2017, corresponding to a deal value of US$100 BN and a median EV/EBITDA multiple of 10.2x ; PE-backed M&As accounted for 4.9% of the total deal volume 14
In 2017, chemical M&A deals grew 45.6% y-o-y, corresponding to a 57.1% decrease in deal value, from the record high of US$233 BN in 2016 Global Chemical M&A – By Deal Volume and Value • Owing to a slowdown in organic sales growth, many companies consider M&A a Deal Volume Deal Value (US$ BN) necessity to secure higher growth 1,127 1,200 947 • Strong outlook for 2018: 934 883 1,000 872 870 829 806 • Higher valuations continue 776 774 733 to be mitigated by 800 233 improving economic 215 600 conditions 104 100 • Continued inexpensive 76 400 financing 60 58 54 46 42 40 Acquisition of assets to • 200 drive earnings gains • Rising deal appetite 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Source: KPMG Deal Capsule Transactions in Chemicals 2018 15
Recommend
More recommend
