Global deal-making will experience a continued hangover in 2020 thanks to ongoing worldwide economic uncertainty and the risk of global recession, according to the new report by Baker McKenzie. The report also reveals that the deal flows in North America and the Middle East are outliers to the global trend.
The firm’s fifth annual Global Transactions Forecast, produced in conjunction with Oxford Economics, projects that merger and acquisition (M&A) value will decline globally from $2.8 trillion in 2019 to $2.1 trillion in 2020. The report predicts a downward trend in IPO proceeds from an estimated $152 billion in 2019 to $116 billion, a 23% drop.
“Make no mistake — deals are getting done, but the current slowdown is inevitable considering the continuing uncertainty around trade and regulation,” said Ai Ai Wong, Chair of Baker McKenzie’s Global Transactional Group. “We know that around the world, there are many investors and companies with capital on the sidelines, waiting to move forward with domestic and cross-border deals.”
Deal-making remain robust in the Middle East, underpinned by strong domestic activity. Some of the large transactions in 2019 include Saudi British Bank’s $5 billion merger with Alawwal bank and Abu Dhabi National Oil Company’s $4 billion sale of a 40% stake in its pipeline unit to US private equity investors KKR and BlackRock. The Middle East anticipates to close $45 billion in M&A deals in 2019, subsequently falling in line with global trends in 2020. Although Saudi Aramco’s $69 billion purchase of a 70% stake in Saudi Basic Industries Corporation should boost M&A proceeds in 2020. The region also expects a rise in IPO proceeds from $2 billion in 2019 to over $40 billion in 2020, with the potential floatation of 2% of the shares of Saudi Aramco.
“The M&A markets particularly in Saudi Arabia and the UAE have remained buoyant this year, with transaction values boosted by mega deals such as the ground-breaking merger of Saudi British Bank and Alawwal bank, and by cross-border inflows into the UAE, facilitated by recent foreign investment reforms,” said Omar Momany, UAE Head of Corporate/M&A at Baker McKenzie Habib Al Mulla. “Although we expect deal values to return to normal levels in the coming years, the Middle East is likely to remain an attractive target region for both domestic and foreign investors.”
Karim Nassar of the Corporate/Equity Capital Markets Group of Legal Advisors in Riyadh added: “While we have seen relatively subdued IPO activity globally and in other Gulf countries, the pipeline activity for listings out of Saudi Arabia continues to develop rapidly. With Riyadh’s inclusion on the MSCI emerging market index and the anticipated listing of Saudi Aramco that could raise up to $40 billion, this will definitely provide an enormous boost to global IPO proceeds in 2020 and beyond.”
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