M&A: a summer snapshot
Connor Agnew
Corporate Finance adviser providing integrated scaleup and M&A advice to founders and leaders of #Media businesses
Despite the potential quiet the summer months can bring (and of course the questionable summer weather) a lot has been going on in the economy which has and will continue to have a marked impact on the M&A landscape.
Here are a few things which have caught the eye over the last two months…
China
With 30% of the value wiped off the Chinese stock market since June, state intervention (in the form of cash to prop up the market and the Government asking / telling investors not to sell) appears not to have worked, and so followed Black Monday where the Shanghai Composite (China’s main stock exchange) fell 8.5% – the worst fall since 2007. This fall sparked a knock-on effect on markets across the globe with the FTSE 100 falling by more than 1,000 points and the Dow Jones dropping by 6% (before paring back to close 3.6% lower). There were also drops of c. 5% in the major markets in France and Germany.
A Turnaround Tuesday? Well despite further falls on the Shanghai Composite (closing down 7.6%), trading elsewhere on Tuesday suggests so, with FTSE 100 up 3%, the Dow Jones and Nasdaq up 2% and 3% respectively, and Germany’s Dax and Paris Cac up c. 4%.
This turnaround has been encouraged (in part) by the People’s Bank of China announcing a 0.25% cut to the its main interest rate, taking effect from Wednesday. Robert Peston made the point “that [this rate cut] may revive growth and the stock market in the short term - but it will further inflate China's dangerous debt bubble and will increase the longer term risk of a crash.” (https://www.bbc.co.uk/news/uk-34052618). So it’s a case of watch this space…
Baker Tilly’s Head of Corporate Finance, Rob Donaldson, has recently written two interesting articles on China’s current predicament:
Oil
The price of oil has breached $50 again (and is heading lower (currently c. $43) off the back of the recent stock market turmoil in China), fuelling (no pun intended) concerns of more job cuts coming both in the North-East of Scotland and globally, and not just in the large Exploration & Production companies, but the wider industry as a whole.
The impact of the low oil price and dramatic cost reviews by the big industry players appears to have trickled down the supply chain to the local SMEs.
Corporate activity remains buoyant however and deals are there to be done, albeit in a downturn such as this only the bigger deals will continue to command the multiples witnessed in the $100+ oil days.
The base rate
More murmurings from Carney and his MPC colleagues (including Kristin Forbes' strong comments) confirm that a rise in interest rates looks set to be a more debated topic in the coming monthly meetings of the MPC, but taking into account China (and the likely reduction in inflationary pressures for UK plcs - see Rob Donaldson's article, noted above) a rise before next spring is unlikely. Of course the increased cost of borrowing money is another factor to throw into the M&A melting pot going forward.
Greece
And then there’s Alexis and his pals, the pantomime surrounding Greece and the EU continues to rumble on.
Following the passing of the third (of three) reforms, and Greece (now out of default with the IMF) making its €3.2bn repayment to the ECB by the 20th August deadline, it looked like things were more settled… and then Alexis resigns: more uncertainty to come.
All in all a busy summer…