tax insight: global mergers and acquisitions rise in 2018 · 18-02-2019 · technology includes...

Tax insightGlobal mergers and acquisitions rise in 2018

Tax insight Global mergers and acquisitions rise in 2018* by Bob Carroll, James Mackie, Brandon Pizzola and Nick Hallmark

Global M&A totaled $2.6 trillion in 2018, increasing for the first time since 2015. Both within-country and cross-border M&A activity ticked up in 2018, with growth in within-country M&A outpacing that of cross-border M&A. Approximately 60% ($1.6 trillion of $2.6 trillion) was within-country M&A, and 40% ($1.0 trillion of $2.6 trillion) was cross-border M&A. Global M&A increased approximately $300 billion over the 2017 total of $2.3 trillion.

Key findings include:

• The top target industries for cross-border M&A in 2018 were materials ($159 billion; 16%), real estate ($140 billion; 14%), media and entertainment ($108 billion; 11%), high technology ($96 billion; 9%), and energy and power ($92 billion; 9%)1. The top acquirer industries for cross-border M&A in 2018 were financials ($322 billion; 32%), materials ($166 billion; 16%), media and entertainment ($86 billion; 8%), health care ($76 billion; 7%), and real estate ($75 billion; 7%).

• The 10 countries with the most cross-border M&A activity in 2018 were the United States, the UK, France, Germany, Canada, Spain, Italy, the Netherlands, China and Japan. The top five countries account for almost 60% of cross-border M&A activity. The top two countries — the United States and the UK — account for 29% and 10% of total cross-border M&A activity, respectively.

• The top five target countries in 2018 were the United States (26% of cross-border M&A), the UK (12% of cross-border M&A), Spain (7% of cross-border M&A), Germany (6% of cross-border M&A) and Canada (5% of cross-border M&A). The top five acquirer countries in 2018 were the United States (32% of cross-border M&A), France (11% of cross-border M&A), the UK (9% of cross-border M&A), Germany (7% of cross-border M&A) and Canada (7% of cross-border M&A).

1 According to the Thomson Reuters data used in this report, high technology includes computers and peripherals, e-commerce, internet software and services, semiconductors, and other related industries. Within-country M&A refers to transactions involving companies located in the same country — for example, a French company acquiring another French company, while cross-border M&A refers to transactions in which one company acquires another based in a different country — for example, a French company acquiring a German company.

* The views expressed are those of the authors and do not necessarily reflect the views of Ernst & Young LLP or any other member firm of the global Ernst & Young organization.

1July 2019 |

Global M&AAs shown in Figure 1, global M&A totaled $2.6 trillion in 2018. Approximately 60% of that ($1.6 trillion) was within-country M&A, and 40% ($1.0 trillion) was cross-border M&A.

Global M&A has fluctuated greatly since 2004 but has generally followed the global business cycle, rising along with economic growth and falling as growth ebbed. Global M&A peaked in 2007 with over $3.3 trillion of transactions. Cross-border M&A also peaked in 2007, with just over $1.3 trillion of transactions. As the global recession began, cross-border M&A fell significantly, reaching its lowest point in 2009 at $345 billion, approximately one-quarter of its peak two years earlier. Within-country M&A also declined, but only to 45% of its 2007 peak.

Post-recession M&A has generally trended upward. Relative to the 2009 low of $1.2 trillion, global M&A has been above $2.0 trillion since 2015, but with significant variation from year to year. Global M&A approximated $3.0 trillion in 2015, $2.7 trillion in 2016, $2.3 trillion in 2017 and $2.6 trillion in 2018. Since 2015, cross-border M&A has hovered close to $1.0 trillion. In contrast, within-country M&A totaled $2.0 trillion in 2015, $1.6 trillion in 2016, $1.4 trillion in 2017 and $1.6 trillion in 2018.

Figure 1. Global M&A, 2004–18 Billions of US dollars

Note: Thomson Reuters M&A database, from which this information was collected, is continuously updated, and the data are therefore subject to change. Data were accessed Feb. 18, 2019. M&A transactions are reported by their effective date. Acquisitions included are transactions in which the purchaser went from less than 50% ownership to more than 50% ownership. For the purpose of these figures, the country of the acquirer is the country of the acquirer’s ultimate parent. Figures may not sum due to rounding.

Source: Ernst & Young LLP analysis; Thomson Reuters M&A database.

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

$1,343

$1,849

$2,495

$1,648

$1,165

$1,327

$2,003 $2,193

$1,294$1,242

$1,023

$1,152$1,125 $1,164

$1,229

$1,142 $1,016

$1,569

$2,585

$1,606

$1,392

$2,293

$2,748

$2,022

$2,995

$1,999

$1,681$1,665

$1,931

$1,555

$3,331

$684 $847 $899

$345 $532 $540 $517$770

$973 $901$778

$897$984

$360

2 | Tax insight Global mergers and acquisitions rise in 2018

Industry composition of cross-border M&ATables 1 and 2 display the industry composition of cross-border M&A in 2017 and 2018. Data are shown both by target industry (Table 1) and by acquirer industry (Table 2). Cross-border M&A by target industry (Table 1) and by acquirer industry (Table 2) each sums to the total cross-border M&A amount displayed in Figure 1 for 2017 ($0.9 trillion) and 2018 ($1.0 trillion).

While the composition of target industries changes from year to year, industry shares tended to be relatively stable, and no single industry dominated. Between 2017 and 2018, the share of cross-border M&A in materials increased from 11% to 16% and in real estate from 10% to 14%, while decreasing in high technology from 10% to 9%, in energy and power from 12% to 9%, and in industrials from 11% to 9%. One notable outlier in year-over-year changes was cross-border M&A in media and entertainment, which increased from 3% in 2017 to 11% in 2018.

Overall, the top target industries for cross-border M&A in 2018 were materials ($159 billion; 16%), real estate ($140 billion; 14%), media and entertainment ($108 billion; 11%), high technology ($96 billion; 9%), and energy and power ($92 billion; 9%).

The composition by acquirer industry, as shown in Table 2, differs significantly from the target industry composition. The financial industry made up 33% of cross-border M&A in 2017 and 32% of cross-border M&A in 2018, dominating M&A activity. Moreover, there were significant year-over-year changes in other industry shares as well. For example, between 2017 and 2018, materials increased from 9% to 16% and media and entertainment increased from 1% to 8%. Overall, the top acquirer industries for cross-border M&A in 2018 were financials ($322 billion; 32%), materials ($166 billion; 16%), media and entertainment ($86 billion; 8%), health care ($76 billion; 7%), and real estate ($75 billion; 7%).

Table 1. Cross-border M&A, by industry of target company Billions of US dollars

Industry of target 2018 2017Materials $ 158.7 16% $ 95.5 11%

Real estate 139.7 14% 92.8 10%

Media and entertainment 107.8 11% 25.4 3%

High technology 96.1 9% 87.2 10%

Energy and power 92.2 9% 104.3 12%

Industrials 90.7 9% 98.6 11%

Health care 82.8 8% 110.0 12%

Consumer staples 77.5 8% 113.0 13%

Financials 62.7 6% 81.9 9%

Consumer products and services 40.2 4% 43.8 5%

Retail 34.7 3% 23.9 3%

Telecommunications 32.8 3% 24.4 3%

Government and agencies 0.3 0% 0.0 0%

Total $ 1,016.3 100% $ 901.0 100%



3July 2019 |

Table 2. Cross-border M&A, by industry of acquirer company Billions of US dollars

Industry of acquiror 2018 2017Financials $ 321.6 32% $ 301.3 33%

Materials 166.1 16% 80.6 9%

Media and entertainment 85.7 8% 11.2 1%

Health care 76.1 7% 58.0 6%

Real estate 75.0 7% 48.9 5%

Consumer staples 58.6 6% 119.9 13%

Energy and power 56.2 6% 67.2 7%

High technology 52.9 5% 56.2 6%

Industrials 42.1 4% 72.5 8%

Retail 31.9 3% 12.4 1%

Telecommunications 30.8 3% 36.7 4%

Consumer products and services 19.3 2% 35.9 4%

Government and agencies 0.0 0% 0.1 0%

Total $ 1,016.3 100% $ 901.0 100%




2 For more detail on cross-border merger trends within the United States, see Bob Carroll, James Mackie and Brandon Pizzola, Bloomberg BNA, “Insight: U.S. Cross-Border Mergers and Acquisitions Rise in 2018,” April 4, 2019.

Country composition of cross-border M&AFigure 2 displays total 2018 cross-border M&A activity by country, which is the sum of all cross-border M&A deals in that country, including both acquirers and targets. Major developed economies tend to dominate overall cross-border M&A activity. The 10 countries with the most cross-border M&A activity in 2018 were the United States,2 the UK, France, Germany, Canada, Spain, Italy, the Netherlands, China and Japan. The top five countries accounted for almost 60% of cross-border M&A activity. The top two countries — the United States and the UK — accounted for 29% and 10% of cross-border M&A activity, respectively.

Figure 2. Total cross-border M&A activity by country, 2018 Billions of US dollars

Note: Total cross-border M&A activity is defined as the sum of all cross-border M&A in which a country was home to the acquirer or target. Thomson Reuters M&A database, from which this information was collected, is continuously updated, and the data are therefore subject to change. Data were accessed Feb. 18, 2019. M&A transactions are reported by their effective date. Acquisitions included are transactions in which the purchaser went from less than 50% ownership to more than 50% ownership. For the purpose of these figures, the country of the acquirer is the country of the acquirer’s ultimate parent.


$0

Key:

$581b

5July 2019 |

Table 3. Largest target and acquirer countries for cross-border M&A Billions of US dollars

2018 2017

TargetUnited States $ 260.4 26% $ 330.5 37%

UK 117.3 12% 75.7 8%

Spain 66.5 7% 21.3 2%

Germany 60.0 6% 46.6 5%

Canada 47.3 5% 19.3 2%

Netherlands 45.9 5% 21.4 2%

Italy 41.1 4% 11.9 1%

Australia 37.0 4% 17.8 2%

India 33.6 3% 3.8 0%

France 30.1 3% 42.5 5%

Other 277.3 27% 310.2 34%

Total $ 1,016.3 100% $ 901.00 100%

Acquirer

United States $ 320.7 32% $ 185.7 21%

France 110.7 11% 45.2 5%

UK 96.0 9% 138.0 15%

Germany 75.6 7% 42.4 5%

Canada 74.1 7% 98.4 11%

China 46.7 5% 121.6 14%

Switzerland 39.4 4% 10.9 1%

Japan 31.9 3% 61.6 7%

Luxembourg 31.3 3% 15.0 2%

Italy 29.4 3% 1.8 0%

Other 160.4 16% 180.5 20%

Total $ 1,016.3 100% $ 901.0 100%



Table 3 breaks down the largest target and acquirer countries in cross-border M&A in 2017 and 2018. There is notable overlap between the target and acquirer countries and the groupings across years.

The top five target countries for cross-border M&A in 2018 were the United States (26%), the UK (12%), Spain (7%), Germany (6%) and Canada (5%). These five countries accounted for more than half of total cross-border M&A. Similarly, the top five acquirer countries for cross-border M&A in 2018 were the United States (32%), France (11%), the UK (9%), Germany (7%) and Canada (7%). These five countries account for approximately two-thirds of total cross-border M&A. Note that the United States, the UK, Germany and Canada are all in the top five targets and acquirers.

There is also considerable overlap in the top-acquirer countries between 2017 and 2018, with 8 countries in the top 10 both years. The relative position of these countries varies, however, with only the United States, the UK and Canada in the top five for both 2017 and 2018. The target country grouping is more varied, with only 6 countries in the top 10 across both years. The United States, the UK, and Germany are in the top five target countries each year.


Table 4 displays the countries with the largest volume of net cross-border M&A activity in 2017 and 2018. For a given country, net cross-border M&A is total cross-border M&A in which the acquirer is in that country less total cross-border M&A in which the target is in that country. There is significant year-to-year variation, with countries such as the United States and Switzerland switching from being large net targets to large net acquirers. The United States went from having -$144.9 billion of net cross-border M&A in 2017 to $60.3 billion of cross-border M&A in 2018. Similarly, Switzerland moved from having -$67.6 billion of net cross-border M&A in 2017 to $28.3 billion of net cross-border M&A in 2018. In contrast, the UK went from being a large net acquirer in 2017 ($62.3 billion of net cross-border M&A) to a net target in 2018 (-$21.3 billion of net cross-border M&A). Other countries, while remaining either net targets or net acquirers in both years, fluctuated significantly in magnitude. Canada, China, France, Japan and Spain all fluctuated more than $40 billion between 2017 and 2018.

Table 4. Net cross-border M&A, top net acquirers and targets Billions of US dollars

2018 2017France $ 80.6 $ 2.7

United States 60.3 (144.9)

China 38.7 108.8)

Switzerland 28.3 (67.6)

Canada 26.9 79.1

Luxembourg 26.1 11.3

Germany 15.6 (4.2)

Japan 9.6 52.8

Ireland-Rep 6.5 (2.2)

Isle of Man 6.1 3.6

Italy $ (11.7) $ (10.0)

Bermuda (11.9) (8.1)

Israel (12.1) (20.2)

Singapore (13.2) (0.3)

Denmark (18.9) 0.2

UK (21.3) 62.3

Australia (23.2) (3.1)

India (31.3) (1.4)

Netherlands (36.2) (10.8)

Spain (59.9) (17.5)

Other (59.1) (30.5)

Note: Net cross-border M&A is total cross-border M&A in which companies in a country are acquirers less total cross-border M&A in which companies in a country are targets. Thomson Reuters M&A database, from which this information was collected, is continuously updated, and the data are therefore subject to change. Data were accessed Feb. 18, 2019. M&A transactions are reported by their effective date. Acquisitions included are transactions in which the purchaser went from less than 50% ownership to more than 50% ownership. For the purpose of these figures, the country of the acquirer is the country of the acquirer’s ultimate parent. Figures may not sum due to rounding.


7July 2019 |

Figure 3. Net cross-border M&A activity by country, 2018 Billions of US dollars

Note: Net cross-border M&A is total cross-border M&A in which companies in a country are acquirers less total cross-border M&A in which companies in a country are targets. Thomson Reuters M&A database, from which this information was collected, is continuously updated, and the data are therefore subject to change. Data were accessed Feb. 18, 2019. M&A transactions are reported by their effective date. Acquisitions included are transactions in which the purchaser went from less than 50% ownership to more than 50% ownership. For the purpose of these figures, the country of the acquirer is the country of the acquirer’s ultimate parent.


($81b)

Key:

$60b


ConclusionThe global economy is ever changing. To remain competitive, companies must be willing to rapidly adjust their operations and remain on the cutting edge. Business restructuring through divestment of business units and acquisitions of others is one way companies can respond to global change and improve their ability to compete. Mergers, acquisitions, divestitures, spin-offs and other activities that change the scope and focus of a company’s business are all examples of business reconfigurations. These are important tools for creating greater efficiency, better customer service and promoting high-growth sectors in the fluidity of the global marketplace.

M&A can often produce economic benefits for both companies involved. Capital and business processes can be combined and reconfigured in more efficient ways. This provides financial gains to both acquirer and target. For example, cross-border investment could stimulate productivity gains in target countries, while the return on the investment would yield income to acquiring countries. Cross-border investment also provides access to local markets, new suppliers, workforce capabilities and capital markets, improving a company’s competitive edge both locally and globally.

9July 2019 |

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