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Asia-Pacific Region Will Continue to Dominate M&A Activity in 2H2018

Intralinks has issued its Deal Flow Predictor for mergers and acquisitions activity through the fourth quarter of 2018. This report doesn’t involve a crystal ball, nor the leak of inside information. Rather, Intralinks tracks early-stage M&A activity, the better to predict the volume of as-yet unmade announcements. The gist of its prediction about the remainder of this year is as follows: In the second half of the year, growth in the global number of announced deals will resume (after a first-half pause) at roughly 7% year-over-year. The strongest growth in announcements will come from technology (Intralinks calls this the TMT sector because tech includes media and telecoms.), as well as real estate and industrials. When 2018 wraps up, there will have been a global total of 53,000 announced deals. APAC and Due Diligence Geographically, it is the Asia Pacific region that will dominate in the forecasted announcements. In the first half, APAC was the only region to show any growth in the number of deal announcements. In the second half, Intralinks forecasts, 94% of the growth worldwide will come from APAC. Intralinks has noted increasing early-stage activity in Asia in the energy & power sector, TMT, and materials. Within the vast APAC region, one can single out Japan, India, China, South Korea, and Taiwan as playing the largest parts in the M&A growth. Intralinks also looks into the question: how long does due diligence take? It’s critical for the arbs to keep on top of this subject: since trading, like comedy, is a matter of getting the timing right. Worldwide, in the second quarter of 2018, the average time taken to complete due diligence was about 3% longer than it had been in the first quarter, rising to 179 days. Looked at regionally: North America consistently has the longest due diligence periods in the world, consistently above 180 days and sometimes rising above 200. APAC has the shortest due diligence periods. In Q2 2018 its average was below 120 days. Valuation In its discussion of the issue of the valuation of M&A deals, Intralinks relies largely on Thomson Reuters data. TR data indicates that globally such deals involved a value of $2.5 trillion during 1H 2018, which was an increase of 61% from 1H 2017. This was also the strongest first half for global M&A since such numbers have been totaled: that is, since at least 1980. About half of the total valuation came from a small number (81) of “mega-deals.” One of these deals was the acquisition of Shire, an Irish-domiciled pharma manufacturer, by Takeda of Japan. Takeda is said to be considering a plan to sell its former head office in Osaka to raise the funds to support this deal. The company has been criticized for potentially burdening the combined firm with too much debt. Why is there a booming M&A market? The reasons are familiar ones: cheap financing; shareholder pressure on management to find novel avenues for growth; and what the Intralinks report calls the “remorseless advance of ‘platform’ companies such as Facebook, Amazon, Google and Netflix” (FANG). Those are also the reasons why the valuation of these deals has risen. Private equity firms are of course a big part of the action. That said, the Shire/Takeda deal and others illustrate that “corporates too are not shy about digging deep into their pockets to pay for ‘must-have’ targets that have the potential to transform their businesses.” A Final Thought Another ongoing important change, referenced by this report near its conclusion, is that the issue of post-merger integration (PMI) is no longer considered to be a world distinct from the matter of the initial acquisition itself. The corporates “are now favoring an approach that allows” the teams involved in bidding/deal-making and those involved in integration to work together, so that difficulties of integration don’t come as nasty surprises once the deal is done.