The landscape for mergers and acquisitions (M&A) may change in 2017, as the possibility of rising protectionism could easily reduce the number of mega deals, according to Bloomberg. Following the surprise victories of both the Brexit referendum and Republican Donald Trump's bid for the White House, cross-border transaction bids could face significant resistance.
Many of 2016's largest M&A transactions involved companies based in different countries, with Bloomberg data showing they made up nearly half of the $3 trillion worth of deals announced during the year. Should German pharmaceutical company Bayer AG's proposed merger with U.S. agriculture giant Monsanto Company (MON) finalize, it will represent 2016's second-largest M&A deal, according to Fortune. This represents one of many cross-border transactions, with another being China National Chemical Corp's proposed merger of Swiss seed giant Syngenta AG (SYT), The Wall Street Journal reported. (For more, see also: US Panel Opposes China Firms Buying US Companies.)
Going forward, several specific factors could hinder such mega deals.
One development that could easily provide roadblocks for M&A deals is regulation, according to Bloomberg. Regulatory restrictions could impact potential deals in many countries, as Chinese firms are running into these potential obstacles both domestically and on foreign soil, and British Prime Minister Theresa May has indicated that her country needs to develop a specific industrial strategy to protect specific industries and companies in the United Kingdom.
May emphasized that in 2014, the British government came close to permitting U.S. pharmaceutical giant Pfizer Inc. (PFE) to purchase U.S. drug maker AstraZeneca PLC (AZN), according to a separate Bloomberg story.
Trump's ascent to the Oval Office could have a significant impact on mega deals, according to the first Bloomberg article. Trump has repeatedly criticized China, and his view of the Asian nation's trade practices could translate into more stringent scrutiny of any potential Chinese investments in the the United States. The President-elect has proposed tax reform that would give U.S. multinational corporations greater incentive to take their earnings held overseas and repatriate them to the United States, a move that could bolster domestic M&A. (For more, see also: What M&A May Look Like Under President Trump.)
China is planning to place restrictions on its companies' foreign investments at least until September, individuals familiar with the situation recently told Bloomberg. More specifically, these constraints will affect the ability of Chinese firms to buy foreign acquisitions, and will prevent most investments worth at least $10 billion. While these developments could undermine global M&A, Japan could potentially make up the difference, as the nation's companies agreed to elevate their investment spend on foreign assets to $84 billion this year, representing a 23% increase from 2015.