A snapshot of 2013 deal activity would appear to confirm that a corner has been turned and that a global recovery has started to gain some real traction despite recent setbacks.
Global deal activity in the first 11 months of 2013 remained generally level with 2012 on a year on year basis over the equivalent period (US$1.87 trillion up from US$1.86 trillion in the corresponding period). However, whilst the overall trend has been level with the prior year, there have been consistent quarterly increases. This indicates an upward trend which it is hoped, will continue into 2014.
Not surprisingly deal activity has remained relatively subdued in Europe and the US, as these economies have taken longer to recover as a result of their maturity with the highest level of growth being seen in the Middle East and Africa. That said, the levels of distressed debt and undervalued assets combined with the growing optimism in the recovery points towards an upturn in the developed European region. Cross border deals remain significant, amounting to 35% of deal activity, and is likely to remain so as the available cash chases deals.
The London Stock Exchange recently released its own equity capital markets review for the fourth quarter of 2013 which contained an equally optimistic outlook for the recovery in the UK. Their report maintains a continued strong market for IPO’s in London, with 105 new entrants on AIM and the Main Market in 2013 (up from 67 in 2012 – a 56.7% increase) raising an aggregate of US$19,618m (up from US$12,390m in 2012 – a 58.5% increase). Secondary issues mirrored this upward trend with US$39,107m in 2013 compared to US$21,380m in 2012 (an 82.9% increase). Interestingly, over the period, three of the ten largest global IPO’s took place in London, Royal Mail, Merlin and Riverstone Energy, and London ranked second only to New York in terms of money raised at IPO globally in 2013 as London maintained its position as a venue of choice for overseas investors.
The other trend to emerge in equity capital markets was the increase in private equity backed IPO’s as equity houses increasingly view IPO’s as a genuine exit strategy given the continued illiquidity in the debt markets. Globally, private equity backed issuance stood at $170bn in 2013, an 86% increase on 2012, with London accounting for 54% of all private equity backed IPOs on European Exchanges.
Across both M&A and Equity Capital Markets, the outlook for 2014 in the UK would appear optimistic and practitioners generally would express the feeling of an increase in deal activity. However, globally markets remain volatile with continuing concerns over China’s growth and domestic credit bubble and the effects of the Federal Reserve’s recent announcement of tapering of US stimulus measures taking their toll.
Domestically any recovery also has some way to go with concerns over wage inflation, skills shortages and regional disparity of growth.
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