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Activism and sustainability in cross-border M&A

Matthew Toole

13 Sep 2017

People skate on the frozen Doubs river at the Swiss-French border in Les Brenets, Switzerland, January 2, 2017. Photographer: Denis Balibouse
People skate on the frozen Doubs river at the Swiss-French border in Les Brenets, Switzerland, January 2, 2017. Photographer: Denis Balibouse.

Cross-border M&A is up 7% to US$783.8 billion this year, helped by the busiest first quarter in a decade, with US$349 billion of deals announced in the first three months of 2017. Matthew Toole, Director, Deals Intelligence, Thomson Reuters, looks at the trends and presents more highlights from the Reuters Global M&A Summit.

Out of the ten largest corporations in the world, six are tech businesses.

This compares with just one in ten (Microsoft) a decade ago, showing that whatever corner of the industrial economy you sit, the information revolution has something to say about it.

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As a result, industrial companies are increasingly viewing a proactive M&A strategy as a vital tool in side-stepping the otherwise risky and costly proposition of trying to keep up with innovation in-house.

Tech disruption is considered a significant factor in driving industrials M&A up 22% to $150 billion in deals.

Watch video — Reuters Global M&A Summit – The Race for Cross Border Deals

At the same time, a politically charged environment across much of the western world and Middle East is prompting companies to buy into different geographies to diversify their political risk.

The obstacles faced when it comes to cross-border transactions are plenty in today’s landscape.

Watch video — Reuters Global M&A Summit – Greenhill & Co’s Wyles on cross border transaction risks

The activism agenda

A standing agenda item for most corporate boardrooms across Europe is activism.

Activist investors come in all shapes and sizes in Europe, but generally they are less hostile than the United States, where the corporate governance regime is proxy-led, less shareholder-friendly and the CEO and chairman can often be the same person.

In most European jurisdictions, it can be relatively easy for large shareholders to nominate board directors and, with a voice, ‘they do not need to embarrass a company into submission.’

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The motivations for activism are also changing. Whereas once it was all about capital structures and distributions, today it tends to be far more strategic.

Matthew Toole on activist investors

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This in turn is prompting corporations to be proactive in their own housekeeping and divesting non-core assets before they give rise to activist interest.

Increased collaboration

Such activity is buoyed by the fact that there is a cash-rich private equity industry on both sides of the Atlantic who are able to step in with decent valuations should strategic acquirors fail to show up.

In fact, many corporations are going further than pre-empting activists and actually collaborating with them, to listen and share ideas, which ultimately lead to sensible decisions down the line.

You no longer ‘defend’ against activists in Europe. Today, it’s about engagement.

In terms of getting deals done, increasingly companies are looking for an independent adviser, in addition to the usual investment banking names, to provide non-conflicted counsel to board members.

Confidentiality is also seen as a major issue, particularly on smaller cross-border deals, where the risk is high and an early leak can kill it at birth.

Watch video — Reuters Global M&A Summit – Moelis & Co’s Liam Beere on cross border transactions and today’s risks

The current environment of low interest rates, low growth, high valuations makes finding the right target more complex. Expect to see more paper deals.

Meanwhile, pensions deficits will continue to be a real factor for some companies as we scrape the bottom of the yield curve.

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The sustainability question

Also towards the top of the M&A agenda is sustainability.

Whatever the political noises around climate change, institutional investors consistently care about the environment and socially responsible investment practices.

Matthew Toole on M and A sustainability

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Whether certain senior politicians are an advocate or skeptic of climate change does nothing to alter the sustainability focus of companies and private equity firms when assessing target acquisitions.

Business doesn’t like uncertainty.

But for now at least, far from ‘duck-and-cover’, boardrooms are responding to this uncertainty and risk by looking outwards, seeking opportunities and engaging in more cross-border dialogues.

Clearly there is ample strategic rationale for this, as well as more prosaic explanations. As our guest speakers discussed, “most domestic consolidation has taken place already.”

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Download — M&A Summit Infographic 

Stay informed and better advise your clients with Thomson Reuters investment banking tools and in-depth information.

Can the uncertainty of geopolitics affect your corporate strategy more than you think?

In his latest blog, Leon Saunders Calvert, Global Head of Capital Markets & Advisory at Thomson Reuters, explores the impact of geopolitics on corporate success.

Whether it’s corporate strategy and structure, equity and debt capital-raising, new business opportunities, or M&A, we can help you find the global financial information you’re looking for.

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