Market volatility poses challenges for 2016 deals

Reports from PwC and Clifford Chance cite concerns around market volatility as reasons for a challenging 2016 for deal-makers.

It might be a difficult year ahead for deal-making activity and for 2016 to top 2015, according to reports from law firm Clifford Chance and PricewaterhouseCoopers (PwC).

PwC’s “US banking deals insights” said market volatility due to market declines in China, weak growth and other macro events could spell out weakened performance, subsequently affecting the deal volumes. This could be inducing anxiety for fund managers, who currently sit on $1.3 trillion of dry powder to be deployed this year.

Last year, deal volume jumped 65 percent from 2014, according to the report, and banks saw the return of the mega deal, which accounted for 75 percent of deal values above $1 billion. Blackstone and Corsair’s $4 billion announced acquisition of First Eagle Investment Management was one of them, according to PwC’s “US Asset and Wealth Management M&A Insights.”

“[W]hile 2016 is expected to continue to see some high value M&A, concerns around the Chinese (and world) economy and collapsing oil and commodity prices may see caution return to temper activity once again,” Clifford Chance global head of corporate practice Guy Norman said. “Increasing political tensions globally, the prospective US election and ‘Brexit’ uncertainties may also impact activity as the year develops.”

But, even with a drop in volumes from 2015, this year could remain busy for deal-makers.

PwC said, while it’s unlikely for the 2015 deal volumes to be echoed this year, it expects “a robust deal environment” as long as market volatility calms. Key trends fuelling M&A activity thus far were consolidation for cost-saving purposes, building product capabilities, global players entering the US market, the convergence of traditional and alternative managers, and changing regulatory environment driving wealth management deals, among others.

Clifford Chance also noted that the consumer & retail, healthcare and TMT sectors led the way in deal-making, and it expects that trend to continue in 2016, particularly in telecoms infrastructure, the food industry and growing Chinese outbound investment in healthcare.