Allen & Overy’s recent report, Staying power: M&A Insights Q1 2017, found that the value of global cross-border M&A transactions has reached a 10-year high of US$337 billion, up 13 per cent from Q1 2016. This result came despite a 10 per cent reduction in cross-border deal volume.
Geoff Simpson, a partner in Allen & Overy’s Perth office, said rising commodity prices have increased confidence in the mining sector. The firm reported a 142 per cent increase in deal values in the mining sector from Q1 2016.
“Added to this, there is continuing demand, particularly from China, which is bolstering that confidence and looks set to continue,” Mr Simpson said.
“The huge increase in deal values for Q1 may somewhat overstate the level of recovery in the sector. However, many now expect commodity prices to continue firming this year and next, and that will encourage banks and investors to get behind new projects and deals, further adding to the improving strength in the sector.”
While there is strong demand from China for Australian commodities, the report noted that the country is tightening its restrictions on outbound investment. Allen & Overy said China is targeting several types of investment for greater scrutiny, including consortium deals, taking private deals where the ultimate owner is a Chinese company, and extra large core business deals worth over US$10 billion.
“In addition, curbs are being imposed on deals in five specific sectors: real estate, hotels, cinema, entertainment and sports clubs, all areas of growing non-core investment in recent times,” the report said.
Allen & Overy Beijing partner Ling Li said there is still a strong appetite for outbound investment in China, but some deals have been deferred while businesses identify the best way forward under the new restrictions.
“However, the current downturn in transactions will, we think, prove to be more of a hiccup than a permanent correction,” she said.
“China remains open for business.”
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