The trade war between the United States and China represents the greatest emerging risk to mergers and acquisitions (M&A) activity this year, surpassing data privacy and Brexit, according to a recent insight poll of senior global M&A professionals by Merrill Corporation, the leading technology provider for M&A professionals around the world.
According to the global poll, which included respondents from the Americas, Europe and Asia, 53% cited the US-China trade war, rising tariffs and the potential resulting erosion of global GDP as the biggest emerging business risk on their due diligence checklist this year, while 25% pointed to data privacy and 12% said climate change. Only 10% said Brexit was a rising concern. From a regional perspective, Asia led the way with 70% citing the US-China trade war as the greatest emerging business risk, followed by 54% in the Americas and 34% in Europe.
“Despite a marked wave of protectionism, many companies want access to China,” said Rusty Wiley, Chief Executive Officer of Merrill Corporation. “However, there is concern about the corporate costs of doing business in China, especially as regulations including transactions involving foreign investment in the US, such as (CFIUS), have evolved to include companies with five percent foreign ownership.”
In fact, most respondents (54%) said national security and antitrust regulations, such as CFIUS, will be the leading factor in sinking deals this year. And here again, APAC respondents proved most concerned about CFIUS factors, with nearly 69% suggesting that they represent the greatest threat to deals. EMEA respondents followed at 59%, and Americas at 50%. GDPR also proved to be a major factor, with 40% of all respondents believing that the new data regulations would kill deals. Regionally, the Americas led the way in agreement to this response with 43% seeing GDPR as the greatest threat, while a slightly lower 38% of EMEA respondents and 27% of APAC respondents identified GDPR as a threat.
Still, a resounding 86% of respondents agreed that the M&A market was headed in a positive-to-neutral direction this year, while just 14% predicted a negative outlook.
“There is still a great deal of cash in play, particularly with private equity,” said Wiley. “At the same time, dealmakers will be taking an extra look at how crossing borders and leveraging foreign partners will impact the entire M&A life cycle.”
For more on the global corporate development outlook, please see Merrill Insight™ event recaps, 2019 Corporate Development Outlook: Bulls, Bears and Best Practices and the APAC-specific 2019 Corporate Development Outlook: Opportunities, Processes and Predictions. The poll was based on responses from global M&A leaders who participated in these events.
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