Now that the uncertainty around the Brexit vote that dogged the start of the year has disappeared, bankers returning from the beach may be dreaming of a pick-up in dealmaking activity come September.

Compared to last year, so far, it’s been a pretty quiet year for mergers and acquisitions (M&A). According to Thomson Reuters data, compared to the $215 billion (including net debt) worth value of deals which had been announced by the same time in 2015, so far this year the deal value  is around half of the amount compared to last year.

“Last year was an aberration of sorts, and it would always have been very difficult to reach those heights again,” Sriram Prakash, global lead of M&A Insight at Deloitte, told CNBC.

For several reasons for the out-of-the-ordinary strong number that were posted last year. After a long post-credit crisis lull, the market for deals had picked up considerably.

Rather than the manufacturing and industrial companies which are often the backbone of the M&A market, the kinds of companies being sought were different  and included telecoms, media and consumer goods businesses.

However the giant mammoth in the room this year was the U.K. referendum on European Union membership.

“Most dealmakers, bankers and corporates were waiting for that June date,” Matthew Toole, director, Deals Intelligence at Thomson Reuters, said.

Nearly a quarter (23 percent) of the countries polled saw a potential increase in opportunity for M&A investments into the UK, in a snap poll by Deloitte of M&A partners and dealmakers across 24 countries around the world, after the surprise leave vote. With concerns about the clarity of terms of trade deals with the EU and other countries the factor which was putting most people off, the majority, (71 percent) were still operating under a “wait-and-see” approach.

“The biggest shift has been Brexit. M&A is a long-term play and companies are taking a wait and see approach,” Prakash said.

An increasing number of companies which aren’t very reliant on the domestic economy is present in the U.K. A prime example is the chipmaker ARM which will be taken over by Japan’s Softbank in a $32 billion deal later this year. And as sterling continues to be historically undervalued against the dollar and euro, these may become more attractive.

This year’s numbers have been boosted by the attempts by Japanese companies to shore up overseas business as their national economy stagnates and the emergence of China as a global player.

“The big story is the China outbound story. There’s still a little bit of uncertainty about how serious they are,” Toole said.

A factor in this uncertainty that was scited was the abandonment of a planned $14 billion takeout of Starwood hotels by China’s Anbang Insurance.

Rather than the traditional powerhouses like Goldman Sachs and JPMorgan, a greater slice of the shrinking M&A revenues is now going to smaller boutique firms. This translates to even more fierce competition for M&A business by rainmakers.

With slow earnings growth at many existing businesses and companies able to borrow money relatively cheaply, the macroeconomic landscape is one which should be febrile for deal-making.

“Europe has very much been a buyers’ market. European companies are still reasonably valued compared to the U.S.,” Prakash said.

(Adapted from CNBC)

Categories: Economy & Finance