M&A Markets See Highest Average Deal Size Since 2007

M&A markets have staged a strong recovery in 2014, with deal values in the first three quarters of the year already higher than for the same period in 2013 and average deal sizes at their highest levels for many years, according to Allen & Overy’s latest M&A Index.

For now the recovery is looking resilient and optimism is high, fuelled by low interest rates and large cash reserves on corporate balance sheets, although the equity markets are currently undergoing some unhelpful volatility.

Deal values for 2014 to date are up 51% on the same period in 2013. More significantly, the value of cross-border transactions is higher than at any time since 2007, with U.S. companies leading the charge, followed by growing activity from Chinese, UK, German and Canadian strategic investors.

Commenting on the third quarter M&A Index, Andrew Ballheimer, Allen & Overy’s Global Co-Head of Corporate, said: “CEO confidence is certainly back. It is apparent in the size of transactions, with 70 deals worth more than USD5 billion compared to 52 this time last year. But, more importantly, it is evident in the scope of and ambition of transactions. There have been a number of highly strategic deals which have been significant enough to transform companies and in some cases, entire sectors. This consolidation, which has defined the landscapes of several sectors, has driven companies to reassess their strategies. CEOs are acting while market conditions are favourable, rather than risking being left on the sidelines.”

Traditionally, the third quarter is quieter, but transactions have continued at a healthy pace over the summer and the deal pipeline is strong enough to suggest the recovery will continue through the winter and into 2015.

TMT continues to be the leader by deal value, followed by life sciences, with the number of deals so far in 2014 for the former, exceeding the whole of 2013.

The pattern of this recovery continues to between continents and sectors. While the U.S. and Western Europe do now seem to be motoring ahead, and Asia Pacific registered its best start to the year on record, in Q3 deal activity went into sharp reverse in the CEE and CIS region, as the impact of the Ukraine crisis took its toll across the region.

Elsewhere, regulatory requirements continue to dampen M&A in the financial services sector, while private equity has seen more deals so far this year than in any since 2007, although exits still predominate.

Overall though, M&A sentiment is strong and the outlook into 2015 remains positive, if the current volatility in the equity markets is resolved.