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Abu Dhabi, UAETuesday 19 June 2018

Baker McKenzie upbeat on 2018 M&A activity and economic growth

Law firm forecasts $3.2 trillion in mergers and acquisitions next year, as it sees improving global growth

Central bank governors Janet Yellen of the Federal Reserve, Mario Draghi of the European Central Bank, Mark Carney of the Bank of England and Haruhiko Kuroda of the Bank of Japan. many central banks have started to raise interest rates as world economy gains traction. Kai Pfaffenbach/Reuters
Central bank governors Janet Yellen of the Federal Reserve, Mario Draghi of the European Central Bank, Mark Carney of the Bank of England and Haruhiko Kuroda of the Bank of Japan. many central banks have started to raise interest rates as world economy gains traction. Kai Pfaffenbach/Reuters

Baker McKenzie has boosted its forecast for the value of global merger and acquisitions in 2018 by 6.7 per cent due to an improvement in the world economy and an easing of global political risk.

The law firm has increased its forecast for M&A activity to US$3.2 trillion for next year from $3tn, according to the third run of its Global Transactions Forecast, produced by Oxford Economics, an economic forecast and modelling company.

"After a few soft patches in 2017 we have a more optimistic outlook for the global economy and deal-making in 2018, as long as the brakes are not put any further on global free trade," said Paul Rawlinson, Baker McKenzie's global chair.

"We see an uplift in both M&A and IPO activity as deal makers and investors gain greater confidence in the business prospects of acquisition targets and newly-listed businesses.

"However, it's not a done deal, with the threat of hard Brexit and a Nafta collapse both still very real. Business will need to continue to make the case for liberal trade and investment frameworks."

The global economy has shown signs of improving health this year, prompting the IMF in October to raise its outlook for global growth. At the same time, central banks in the developed world are reducing financial stimulus and raising interest rates in a sign that they are also seeing increasing signs of economic stability following years of low interest rates in the aftermath of the 2008 financial crash.

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Still, the value of M&A activity this year is expected to slip to $2.5tn from $2.8tn in 2016, the law firm said. According to the forecast, the level of M&A will peak in 2018 amid higher interest rates, a cyclical easing in global trade and investment growth as well as what Oxford Economics predicts will be a correction in equity prices back to levels that more reflect fundamentals.

With regards to the Middle East, Baker McKenzie did not give a detailed breakdown of figures but said, despite the rise of oil prices, levels of M&A activity are expected to remain broadly unchanged next year due to political risk in the region.

"In the Middle East, investors are still drawn to the regional demographics, GDP growth and the UAE's role as a hub for the region and into Africa, and they appear to have adapted to the headwinds witnessed regionally in 2017," said Will Seivewright, a corporate M&A partner at Baker McKenzie Habib Al Mulla in the UAE.

"M&A activity has continued to fare well through 2017 and is likely to remain at similar levels in 2018, with improvements in oil prices offset by increased regional instability.

"Fortunately, investors appear to be ultimately more influenced by long term strategic decision-making than short term economic considerations."