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Overview of M&A, 2016

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This update on Mergers & Acquisitions, covering the full year of 2016, is based on publicly available information.
For more information: http://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/m-and-a-2016-deal-makers-catch-their-breath

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Overview of M&A, 2016

  1. 1. WORKING DRAFT Last Modified 3/31/2017 10:46 AM Eastern Standard Time Printed 3/31/2017 10:45 AM Eastern Standard Time Copyright © McKinsey & Company Overview of M&A, 2016 MARCH 2017 Michael Park Andy West Peter Keneven Jan Krause
  2. 2. 2Copyright © McKinsey & Company Description of this report This update, covering the full year of 2016, is based on publicly available information. The public databases used to drive the content of the report have not been subject verified by McKinsey & Company. We present no opinions or forecasts on whether the deal activity is positive or value creating, but merely presents the key facts of the transaction activity.
  3. 3. 3Copyright © McKinsey & Company 3McKinsey & Company Contents: Year 2016 in M&A Key facts on global M&A Regional and cross-border M&A activity PE and hostile deals Key findings from “value creation in M&A” initiative
  4. 4. 4Copyright © McKinsey & Company Key insights on global M&A activity in 2016 Global M&A activity declined vs 2015 Also adjusting for increase in market capitalization, M&A activity declined, ending below long term average8 Corporate M&A Activity still represented majority of the total activity at ~90% of overall M&A activity All regions fell in absolute terms in 2016, with Americas still the most active region (50% of total activity) followed by EMEA at 26% In 2015, global M&A activity ended close to ~$3.8 trillion, falling from 2015 level both in absolute value (-17%) and in number of deal (-5%) Value of megadeals (greater than $10 bn) saw a significant decrease (-40%) from 2015 level and also its share of global M&A activity fell from 34% to 25% In 2016, the share of TMT and Industrial sectors together represented more than a third of total M&A activity globally; Healthcare activity declined Majority deals were financed by cash alone (44%), with equity only as the least preferred (25%) Premiums paid in 2016 were higher than in 2014 and 2015; 1 week median premiums increased to 32% vs 29% in 2015 Global activity grew in Q4 2016 vs. previous quarter (+46% in terms of value) but fell vs Q4 2015 (-7% of volumes)
  5. 5. 5Copyright © McKinsey & Company Global M&A market, 2008-16 Announced deals1 1 Includes deals more than $25mn in deal value only SOURCE: Dealogic $3,044 -32% 3,500 2,000 500 1,000 0 6,000 10,000 12,000 8,000 3,000 0 1,500 2,000 2,500 4,000 4,000 4,500 5,000 2009 $ 2,068 2008 $ 3,044 20112010 2012 $ 2,637 $ 2,505 $ 3,778 20152013 $ 2,674 2014 $ 3,513 2016 $ 4,561 $ 2,494 $2,068 -32% $2,494 21% $2,637 6% $2,505 -5% $2,674 7% $3,513 31% $4,561 30% Deal value (bn) % change Number of deals % change Average deal value (mn) % change $3,778 -17% 8,156 -18% 5,668 -31% 7,194 27% 7,616 6% 7,333 -4% 6,961 -5% 7,617 9% 8,445 11% 8,057 -5% $373 -18% $365 -2% $347 -5% $346 0% $342 -1% $384 12% $461 20% $540 17% $469 -13% Number of dealsValue, $ bn ▪ In 2016, global M&A activity decreased from 2015 level (-17%), to less than $4 trillion the level close to 2014 ▪ Although number of deals only decreased slightly by 5% vs. 2015 ▪ Average deal size decreased by 13% (almost the same value as in 2014) ▪ Relative lack of big deals led to the fall in deal value in 2016
  6. 6. 6Copyright © McKinsey & Company Adjusting for increase in market capitalization, M&A activity declined in 2016 below long term average Annualized global M&A volume1 as % of global market cap2 1 Announced deals (not withdrawn), includes deals more than $25mn only, total deal value excluding debt 2 Market cap of world-DS market index defined by datastream 3 Excludes PE, sovereign wealth funds, other investment funds SOURCE: Datastream; Dealogic 0 9 6 7 8 5 12 11 10 01 1312971996 2000 1511100698 02 0705 08 201603 090499 14 Corporate acquirers3 Total M&A 20-year average 6.5 7.2 Corporate M&A as share of global market cap rose steeply in 2015 Previous M&A downturn much deeper, but short PE boom main driver of increase in M&A in 2004-07
  7. 7. 7Copyright © McKinsey & Company Global Corporate and Private Equity M&A, 2008- 2016 1 Announced deals (not withdrawn), includes deals above $25mn only SOURCE: Dealogic Global PE M&A volume Global Corporate M&A volume Value1, $ bn Value1, $ bn 3,968 2,354 4,000 6,000 0 3,000 4,000 2,000 2,000 8,000 1,000 0 2011 2012 $2,237 2013 2014 2015 3,093 2016 3,370 $1,957 2009 $2,334$2,245 2010 $2,816 2008 420320268303249110228 1,000 400 800 600 0 2,000 1,500 1,000 200 0 500 2009 2010 20112008 20162015 593 201420132012 407 Number of deals Number of deals Comments ▪ Corporate/Strategic acquisitions still account for majority of deal activity ▪ Corporate volumes showed a decline in 2016 ($3.4 tn) vs. 2015 ($4.0 tn) ▪ Average corporate deal size in 2016 was $457 mn, lower than the 2015 average of $520 mn ▪ PE volumes low in 2016 (~$400 bn) vs 2015 when they were close to $600 bn ▪ Average PE deal size in in 2016 was $601 mn, lower than the 2015 average of $732 mn but higher than 2014 levels of ~$500 mn
  8. 8. 8Copyright © McKinsey & Company Global M&A deals by region and size, 2012-16 1 Includes deals more than $25mn only SOURCE: Dealogic $1,182 (26%)APAC EMEA $3,778 $906 (24%) $1,891 (50%) $981 (26%) $4,561 Americas $3,513 $808 (23%) $1,735 (49%) $2,505 $1,063 (23%) $1,237 (49%) $761 (30%) $970 (28%) $507 (20%) $1,297 (48%) $572 (21%) $805 (30%) $2,674 $2,316 (51%) Number of deals per size bracket $822 (37%) $1bn-$10bn <$1bn >$10bn $1,702 (37%) 2016 $3,777 $1,571 (42%) $940 (25%) $1,266 (34%) 2015 $4,562 $1,316 (29%) 2012 $2,674 $826 (24%) $345 (14%) $1,120 (42%)$1,096 (44%) 2014 $1,468 (42%) $2,505 $1,218 (35%) $3,513 $1,064 (42%) $436 (16%) 2013 $1,118 (42%) $1,543 (34%) Value1, $ bn, % of total Deals by size Value1, $ bn, % of total Deals by geography ▪ All regions saw a drop in activity in absolute deal value terms in 2016; fall of 18% in Americas, 23% in Asia-Pacific and 8% in EMEA in 2016 versus 2015 ▪ Breakdown by regions in 2016 saw a slight decrease for Americas (50% vs 51%) and APAC (24% vs 26%) but an increase in EMEA (26% vs 23%) ▪ Value of megadeals (greater than $10 bn) saw a significant decrease (- 40%) from 2015 level and also its share of global M&A activity fell from 34% to 25% ▪ Total value of midsize and small size (lower than $1 bn) deals slightly decreased respectively by (8%) and by (4%) vs. 2015 17 18 35 58 35>$10bn 465 481 570 647 598$1bn-$10bn 6,851 6,462 7,012 7,742 7,420<$1bn
  9. 9. 9Copyright © McKinsey & Company Cash financing was a preferred financing method in 2016 globally 1 Top 100 announced deals (not withdrawn) globally and top 50 in EMEA/APAC with details provided for financing means: EMEA/APAC refers to EMEA/APAC target 2 For several top 100/top 50 deals, information on financing not available SOURCE: Dealogic Top deals1, $ bn, % 33% 42% 51% 58% 32% 21% 17% 17% 16% 21% 25% 57% 50% 41% 32% 21% 44% 22% 794 113918921093674703 36% 41% 42% 60% 14% 19% 29% 79% 50% 54% 39% 28% 62% 9% 450 378 12% 330 8% 5% 13% 233 279 256 Top 100 global deals by financing means available2 Top 50 EMEA deals by financing means available2 Top 50 APAC deals by financing means available2 15% 32% 31% 35% 24% 66% 67% 58% 52% 43% 52% 23%22%18%17%16% 18% 197 222 2015 2016 381 20142013 10% 2012 160 140 2011 166 EquityCash Mix equity/ cash ▪ Deals financed by cash represented the main financing method (44%) ▪ Equity only continues to remain least preferred method of payment globally ▪ Mix equity/cash deals fell as compared with 2015 ▪ Share of deals financed by cash increased significantly during 2016 (62%); highest level in the past 5 years ▪ Share of deals financed by mix equity/cash decreased by 51 percent points ▪ Cash-only continues to be most preferred method representing 52% of deals ▪ Share of deals financed by equity fell be 11 percent points
  10. 10. 10Copyright © McKinsey & Company TMT and Industrials together represent more than a third of total M&A activity globally SOURCE: Dealogic TMT Energy & Utility Consumer & Retail Real Estate & Construction TTL 100% = Healthcare Financial Services Industry & Others 260 (7%) 2015 532 (12%) 217 (5%) 285 (6%) 556 (12%) 3,513 1,007 (22%) 106 (3%) 4,562 519 (11%) 505 (13%) 2016 Basic Materials 766 (20%) 372 (10%) 482 (13%) 368 (10%) 313 (8%) 3,777 304 (8%) 302 (8%)Oil & Gas 185 (7%) 164 (7%) 281 (11%) 367 (15%) 290 (12%) 438 (12%) 279 (6%) 151 (3%) 488 (11%) 631 (18%) 372 (11%) 2014 542 (15%) 246 (7%) 254 (7%) 254 (9%) 144 (5%) 286 (8%) 110 (4%) 109 (3%) 2,505 350 (10%) 368 (15%) 259 (10%) 526 (12%) 304 (12%) 155 (6%) 134 (5%) 2012 560 (21%) 2,674 205 (8%) 420 (16%) 191 (7%) 290 (11%) 270 (10%) 285 (8%) 2013 232 (9%) Global M&A deals by sector, 2012-16 Value1, $ bn, % of total ▪ In 2016, the share of TMT slightly declined but still represents ~20% of total M&A activity globally ▪ Activity in Energy & Utility and TTL almost doubled after reporting declines for last 2 years ▪ Healthcare declined by 44% vs 2015; sector one of the biggest decline
  11. 11. 11Copyright © McKinsey & Company Premiums paid saw an uptick in 2016 when compared with premiums in 2014 and 2015 SOURCE: Dealogic Note: Based on selected deals announced in 2016, N = 371. Only includes 100% acquisitions, excludes negative premiums and deals where target price was clearly affected by rumors, etc. Percent 45 1616139 10%-20% 30%-40%20%-30% >40%0%-10% Comparison of region-wise median premiums (FY 2016), Percent Distribution of one-month premiums (FY 2016), Percent 24 27 39 37 28 32 One week One month 31 28 26 32 29 27 38 32 28 One-day premium One-week premium One-month premium Median premium paid in 2014-16 APAC EMEA Americas FY ’15’14 ‘16 FY FYFY ’15’14 ‘16 FY FYFY ’15’14 ‘16 FY FY
  12. 12. 12Copyright © McKinsey & Company 12McKinsey & Company Contents: Year 2016 in M&A Key facts on global M&A Regional and cross-border M&A activity PE and hostile deals Key findings from “value creation in M&A” initiative
  13. 13. 13Copyright © McKinsey & Company Key insights on regional and cross-border M&A activity, 2016 Cross-border M&A activity Europe and Africa Americas APAC ▪ APAC activity also decreased during 2016 in deal value (-23%) and number of deals slightly falling (-0%), with region’s contribution to total activity remaining stable at 24% ▪ Most of the decrease can be attributed to China/HK/Taiwan region ▪ In 2016, deal activity in APAC decreased across all sectors; TMT, Real estate / construction and CPG together contributed more than 50% of the total activity in APAC ▪ Activity in Americas region decreased by 18% during 2016; share of global activity was about 50%, making it the most active region for the 8th year in a row ▪ United States alone contributed to the fall in Americas activity during 2016, while rest of North America and Latin America showed an increase ▪ During 2016, TMT and Energy contributed to nearly 40% of the total activity in Americas, while Healthcare showed a steep decline (-55%) compared to 2015 ▪ M&A activity in EMEA region fell in 2016 in both absolute value (-8%) and number of deals (-4%) ▪ EMEA region represented 26% of global activity in 2016 ▪ UK/Ireland is the most active region in EMEA, with a share of about 23%, while activity in Germany/Swi/Aut was a close second at 20% share ▪ Deal activity in Africa increased significantly by 77% in 2016 at $46 bn, with South Africa’s share of M&A activity in Africa remains high at ~55% ▪ During 2016, TMT and Industry sectors continued to remain significant in activity contributing ~40% of the total activity; TMT grew by +29% in absolute value terms ▪ Share of cross regional M&A increased to 24% 2016 vs. 17% in 2015 ▪ Domestic deal activity still contributed the most at 63% but its share has been falling since 2013. from 73% in 2013 to 69% in 2014 and 2015 ▪ Cross border activity fell slightly from 14% to 12%
  14. 14. 14Copyright © McKinsey & Company Cross-border M&A activity: Past 4 years 14% 24% 4561 73% 3513 14% 63% 17% 69% Domestic Cross-border within region Cross-regional2 3777 69% 12% 17% 2674 12% 15% 30% 37% 28% 23% 29% 53% 47% 33% 36% 18%18% 45% 970805 Domestic Cross-regional2 981 Cross-border in region 1063 78% 81% 83% 80% 9%11% 12% 1182 FY 2016 8% Domestic 906 Cross-regional2 FY 2015 Cross-border in region 8% 808572 8%12% FY 2014FY 2013 10% 1 Includes deals above $25mn only 2 Intercontinental deals between EMEA, Americas, and APAC SOURCE: Dealogic Cross-border deals Value1, $ bn, % of total 6%7% 17% 78%77% 10% 83% 70% 6% 16% 1297 1735 2316 Domestic Cross-border within region Cross-regional2 1891 9% 21% Global EMEA Asia-Pacific Americas ▪ Domestic deal activity dropped by 26% in 2016 vs. 2015 contributing to 80% of the total deal activity as compared with 43% in 2015 ▪ Cross-regional activity fell by 24% while cross-border activity grew by 5% in absolute terms ▪ Domestic deal activity remained stable in 2016 contributing to 36% of the total deal activity as compared with 33% in 2015 ▪ Cross-regional activity grew in absolute and relative terms to make up almost a half of all activity, while cross-border activity fell by 55% in absolute terms and lost 19% percent points ▪ Share of domestic deal fell in Americas ▪ In absolute terms, cross-border within region increased by 29% vs 2015, followed by cross- regional (9%), while domestic activity fell by 27% ▪ Share of domestic deal, cross-regional and cross-border M&A significantly changed in 2016 vs 2014 ▪ Cross-regional activity increased by 19%, while cross-border and domestic activity fell by 28% and 24% respectively
  15. 15. 15Copyright © McKinsey & Company Cross-regional M&A in 2016: Global deal flows SOURCE: Dealogic 1 Includes deals above $25mn only Asia-PacificAmericas EMEA Announced deals1 Net inflows $ bn EMEA 157 Americas 120 Asia- Pacific -276 APAC->Americas $149 bn (79%) 228 deals (14%) Americas->APAC $39 bn (-19%) 90 deals (-7%) EMEA->EMEA $535bn (-29%) 1,507 deals (-4%) EMEA->Americas $257 bn (-11%) 232 deals (-4%) Americas->Americas $1,485bn (-24%) 2,066 deals (-13%) APAC->EMEA $199 bn (111%) 275 deals (38%) APAC->APAC $834bn (-23%) 3,318 deals (-0.1%) Americas->EMEA $247 bn (15%) 261 deals (-28%) EMEA->APAC $32 bn (-30%) 75 deals (-10%) ( ) Change vs. 2015
  16. 16. 16Copyright © McKinsey & Company EMEA M&A market, 2008-16 SOURCE: Dealogic 1 EMEA targets, deals more than $25mn only Value $ bn Number of deals Announced deals1 688 -47% 1,811 -42% 380 -10% 799 16% 2,138 18% 374 -2% 827 3% 2,264 6% 365 -2% 761 -8% 2,003 -12% 380 4% 805 6% 1,813 -9% 444 17% 970 20% 2,047 13% 474 7% 1,063 10% 2,131 4% 499 5% 1,000 1,400 4,000 3,000 2,000 0 1,200 400 1,000 600 200 0 800 $ 688 $ 1,309 2008 2014 $ 970 20132011 $ 1,063 $ 805 2012 $ 761 20152010 $ 827 $ 981 $ 799 2009 2016 Deal value (bn) % change Number of deals % change Average deal value (mn) % change ▪ M&A activity in EMEA region fell in 2016 (- 8%) ▪ In 2016 number of deals fell by 4%, resulting in an average deal value fall of 4% – EMEA region had 26% of global activity in 2016 – Was second most active region after the Americas 981 -8% 2,043 -4% 480 -4% 1,309 3,105 422
  17. 17. 17Copyright © McKinsey & Company UK/Ireland is the most active region in EMEA; Ger/Swi/Aut were a close second SOURCE: Dealogic 1 Includes deals more than $25mn only; 2 Numbers don’t add up to total deal volume because of exclusion of a few countries 74 170 118 99 45 72 66 81 60 43 80 146 123 46 71 70 48 76 73 65 53 54 80 48 64 46 58 54 88 75 35 805 121 (15%) 2013 32 244 (25%) 445 (42%) 31 104 (10%) 2014 970 165 (17%) 39 168 (21%) 2012 38 143 (19%) 150 (20%) 40 39 761 33 40 230 (23%) BeNeLux Russia/EE France Middle East & Africa Iberia Italy Scandinavia 2016 Rest of Europe UK/Ireland Ger/Swi/AT 981 197 (20%) 40 2015 1,063 EMEA deals by geography Announced deals1 $ bn ▪ UK/Ireland is the most active region in EMEA, with 23% share of deal activity; although it saw a significant fall as compared to 2015 when it was about 42% of the total activity ▪ Ger/Swi/Aut saw an increased share to 20% from 10% in 2015
  18. 18. 18Copyright © McKinsey & Company TMT, Industrial and real estate represented more than 50% of total deal activity in EMEA in 2016 SOURCE: Dealogic TTL Industry and others TMT 100% = Financial Services Consumer and retail Healthcare Real Estate/Construction Basic Materials 212 (22%) Energy & Utility 175 (18%) 2016 133 (14%) 2013 66 (7%) 23 (2%) 2015 164 (15%) 59 (6%) 1,063 100 (9%) 145 (14%) 131 (12%) 139 (13%) 81 (8%) 225 (21%) 51 (5%) 27 (3%) 65 (8%) 183 (19%) 761 84 (11%) 170 (22%) 76 (8%) 120 (12%) 56 (6%) 2014 86 (9%) 156 (19%) 822 212 (22%) 108 (11%) 96 (10%) 111 (14%) 132 (16%) 134 (17%) 43 (5%) 62 (8%) 805 65 (8%) 32 (3%) 112 (11%) 38 (5%) 2012 87 (11%) 91 (12%) 34 (5%) 40 (5%) 108 (14%) 65 (8%) 83 (11%) 981 127 (13%) 73 (7%) EMEA M&A deals by sector, 2012-16 Value1, $ bn, % of total ▪ During 2016, TMT and Industry showed a significant increase in activity ▪ TMT, Industry and real estate represented more than 50% of total deal activity in EMEA ▪ Consumer and retail showed a sharp decline compared to 2015
  19. 19. 19Copyright © McKinsey & Company Deal activity in Africa increased significantly in 2016 after witnessing a drop in 2015; with South Africa bouncing back SOURCE: Dealogic 1 Announced deals above $ 25 Mn (excluding withdrawn or cancelled deals) for target region Africa 46 2133 11 14 43 10 51 32 36 11 25 46 +66% 201615 26 15 21 21 1312 23 11 33 15 17 2010 19 +77% African deal volume Aggregate deal value $ bn Other Africa South Africa ▪ Deal activity in Africa increased by a significant 77% in 2016 when compared to 2015 ▪ South Africa’s share of M&A activity in Africa remains high at ~55% ▪ Other major countries were Egypt, Morocco and Congo with a combined ~$10.8 bn of M&A activity in 2016
  20. 20. 20Copyright © McKinsey & Company Americas M&A market, 2008-16 SOURCE: Dealogic 1 Targets based in Americas region, deals more than $25mn only 0 2,400 3,000 1,000 2,000 0 1,200 600 1,800 300 2,100 900 1,500 $ 889 2009 $ 1,197 2008 $ 1,237$ 1,216 20112010 $ 1,118 $ 2,316 2014 2015 $ 1,735 2013 2016 $ 1,891 2012 $ 1,297 1,197 2,337 512 889 -26% 1,607 -31% 553 8% 1,118 26% 2,430 51% 460 -17% 1,216 9% 2,599 7% 468 2% 1,237 2% 2,805 8% 441 -6% 1,297 5% 2,573 -8% 504 14% 1,735 34% 2,732 6% 635 26% 2,316 33% 2,813 3% 823 30% 1,891 -18% 2,526 -10% 749 -9% Deal value (bn) % change Number of deals % change Average deal value (mn) % change Announced deals1 ▪ Activity in Americas region decreased by 18% during 2016 vs 2015 ▪ Number of deals also fell by -10% vs. 2015, resulting in decrease of average deal value (-9% vs 2015) ▪ Americas region’s share of global activity remained at about 50%, making it the most active region for 8 years in a row Value $ bn Number of deals
  21. 21. 21Copyright © McKinsey & Company Americas deals by geography Announced deals1 $ bn Americas M&A deals by country/region, 2010-16 SOURCE: Dealogic 1 Includes deals more than $25mn only 2,316 1,735 121 2016 1,891 1,713 86 89 14 1,488 127 2010 778 94 12 89 -20% 2,147 1511 1,216 1,297 87 975 145 149 940 96 13 1,237 1,118 246 118 149 83 1,092 Rest of NorthAm USLatam (incl. Caribbean) ▪ United States saw a decline (-20%) in M&A activity during 2016; 91% of Americas activity was in US ▪ Rest of North America and Latin America both showed a a slight increase in activity ▪ Latin America increased its incidence to 5% share (higher than last year)
  22. 22. 22Copyright © McKinsey & Company Americas M&A deals by sector, 2012-16 SOURCE: Dealogic Sector shares Energy & Utility 100% = TMT 235 (12%) 2,316 235 (10%) 445 (19%) 233 (10%) 169 (9%) 74 (3%) 191 (8%) 86 (4%) 200 (11%) 355 (20%) 2014 226 (10%) 337 (19%) 158 (9%) 34 (2%) 220 (9%) 822 2015 608 (26%) 182 (10%) 165 (9%) 112 (6%) 2012 199 (16%) 135 (11%) 124 (10%) 161 (13%) 34 (3%) 44 (3%) 162 (13%) 151 (9%) 65 (5%) 2013 163 (9%) 84 (6%) 111 (6%) 205 (16%) 1,237 135 (10%) 336 (19%) 81 (5%) 1,297 211 (16%) 335 (26%) 58 (5%) 72 (6%) 290 (23%) 114 (9%) 108 (9%) 41 (3%) TTL Basic Materials Industry and others 1,891 Healthcare 410 (22%) 385 (20%) Financial Services Consumer and retail 2016 Real Estate/Construction Announced deals1, $ bn ▪ During 2016, Energy and Utility (incl. Oil & Gas) showed a significant uptick in activity (75% increase vs 2015) ▪ TMT contributed to nearly 20% of the total activity n Americas (a significant fall when compared with 2015 activity) ▪ Healthcare sector declined by more than 50% to $200 Bn from $445 Bn in 2015
  23. 23. 23Copyright © McKinsey & Company APAC M&A market, 2008-16 SOURCE: Dealogic 1 APAC targets, deals more than $25mn only 600 800 400 0 200 3,000 2,000 1,000 0 1,200 1,000 4,000 2016 $ 906 $ 1,182 20152014 $ 808 2009 20132008 $ 577 $ 491 20122010 $ 507 $ 572 2011 $ 593 $ 539 539 2,714 199 491 -9% 2,250 -17% 218 10% 577 17% 2,626 17% 220 1% 593 3% 2,753 5% 216 -2% 507 -14% 2,525 -8% 201 -7% 572 13% 2,575 2% 222 11% 808 41% 2,838 10% 285 28% 1,182 46% 3,501 23% 338 19% 906 -23% 3,488 0% 260 -23% Deal value (bn) % change Number of deals % change Average deal value (mn) % change Value $ bn Number of deals Announced deals1 ▪ APAC saw a decreased activity during 2016 in deal value by -23%; number of deals remained almost constant ▪ Average deal size decreased by (-23%) to ~$260 mn ▪ In 2016, APAC’s contribution to total activity was 24% in line with the past two years
  24. 24. 24Copyright © McKinsey & Company APAC M&A deals by country/region, 2012-16 SOURCE: Dealogic 1 Includes deals more than $25mn only, APAC targets Australia/NZ Japan China (incl. HK & Taiwan) Rest of APAC India South Korea 2016 90 82 (10%) 1,182 84 (15%) 808 105 (12%) 72 457 (57%) 2015 47 49 (5%) 785 (66%) 94 (10%) 80 93 (8%) 103 64 518 (57%) 60 906 2014 69 53 75 2013 572 247 (43%) 507 79 85 75 (15%) 85 2012 83 29 48 185 (36%) 43 37 APAC deals by geography Announced deals1 $ bn ▪ Most of the APAC activity was driven by China/HK/ Taiwan region ▪ Developed APAC contributed 27% to total APAC M&A activity ▪ Australia/NZ saw a slight uptick in activity when compared with 2015
  25. 25. 25Copyright © McKinsey & Company APAC M&A deals by sector, 2012-16 SOURCE: Dealogic 2012 507 51 (10%) 62 (12%) 38 (7%) 82 (16%) 118 (10%) 96 (11%) 78 (9%) 2015 94 (10%) 68 (8%) 55 (6%) 1,182 106 (13%) 202 (17%) 235 (20%) 60 (5%) 81 (7%) 193 (16%) 118 (10%) 125 (11%) 822 2014 179 (22%) 110 (14%) 50 (4%) 15 (3%) 61 (12%) Consumer and retail 906 Energy & Utility 185 (20%) 169 (19%) 113 (12%) Healthcare Financial Services Basic Materials 2016 Industry and others 91 (11%) 117 (14%) 78 (10%) 67 (8%) TTL 100% = Real Estate/Construction TMT 56 (10%) 43 (8%) 79 (14%) 146 (26%) 48 (5%) 63 (11%) 54 (9%) 26 (3%) 33 (4%) 572 2013 69 (12%) 79 (16%) 29 (6%) 65 (13%) 64 (13%) 23 (4%) Announced deals1, $ bn Sector shares ▪ In 2015, deal activity in APAC decreased across all sectors ▪ TMT showed a slight increase in activity, but gained 3percent points in terms of relative incidence ▪ TMT, Real estate / construction together contributed to nearly 40% of the total activity in APAC
  26. 26. 26Copyright © McKinsey & Company M&A activity in China 1 Inflow: local target acquired by foreign companies; outflow: local companies acquiring targets abroad. 2 Announced deals (not withdrawn), includes deals of more than $25 mn only. Chinese targets SOURCE: Dealogic M&A activity in China heated up in the past 3 years – in particular, outbound activity Aggregate deal value, $ bn2 15 37 2016 -224 34 -98 2010 13 22 45 -52 12 -56 27 -48 14 29 -70-65 11 38 1,029 1,034 932 2,0571,083 1,318 1,988 xx Number of deals Inflow Outflow M&A inflow1 and outflow1, $ bn2 167 12 418 215 482 +53% +95% 158 11 15 640 201614132010 158 ▪ Chinese M&A volume increased during 2015, and reached its highest level in the last 6 years; 2016 saw lower activity ▪ Outbound M&A continued to grow even stronger in 2016 to 7 times inbound activity ▪ ChemChina’s announcement to acquire Syngenta for ~$43bn was the largest Chinese outbound deal of 2016
  27. 27. 27Copyright © McKinsey & Company 27McKinsey & Company Contents: Year 2016 in M&A Key facts on global M&A Regional and cross-border M&A activity PE and hostile deals Key findings from “value creation in M&A” initiative
  28. 28. 28Copyright © McKinsey & Company Key insights on PE and hostile M&A activity in 2016 PE Hostile deals ▪ Overall PE activity decreased by -31% vs. 2015 close to ~$400 bn, from ~$600 bn in 2015 ▪ America reported a significant fall (-49%), while EMEA remained stable and APAC activity grew by +11% ▪ Overall PE contribution to the global M&A declined slightly to 11%, far from 2006-07 high of ~20% ▪ Hostile M&A deals fell significantly to $262 bn (-57% vs. 2015) back to the post recession levels ▪ Average deal value fell to ~4.3 Bn, almost becoming half of 2015 level ▪ Number of hostile deals slightly fell (-9%) indicating lower number of mega-hostile deals ▪ The incidence of withdrawn deals on hostile deals is more relevant 28McKinsey & Company
  29. 29. 29Copyright © McKinsey & Company PE M&A activity dropped in 2016 on a global basis, driven by the Americas; APAC the only region showing slight growth 1 Announced deals (not withdrawn), includes deals more than $25mn only SOURCE: Dealogic Global PE by region (deal value, $ bn1 and proportions ) 27% 54% 33% 20142010 2013 12% 39% 58% 13% 39% 15% 35% 407 50% 2015 9% 593 2016 66% Americas APAC EMEA 15% 34% 14% 48% 2009 110 2008 228 50% 43% 40% 17% 268 31% 61% 249 24% 2011 303 48% 420 13% 12% 2012 320 % change ▪ Global – APAC – EMEA – Americas PE activity as share of total M&A activity (%) 8% 8% 6% 7% -52% -38% -60% -46% 5% 6% 4% 5% 125% 101% 94% 165% 10% 11% 7% 11% 22% 1% 17% 32% 11% 12% 7% 14% -11% -17% -26% -1% 11% 10% 6% 13% 19% 15% 34% 13% 12% 12% 6% 14% 31% 46% 67% 9% 12% 17% 7% 12% 41% 1% -12% 96% 13% 14% 5% 17% -31% 11% 0% -49% 11% 15% 7% 11% ▪ Global – APAC – EMEA – Americas Comments ▪ Overall PE activity decreased by -31% vs. 2015, falling slightly below 2014 levels ▪ Most of the PE Activity still dominated by the Americas region ▪ Overall PE contribution to the global M&A remained stable at 11- 13%, greater than the lows of single digit 5-8% in the recession period
  30. 30. 30Copyright © McKinsey & Company Hostile M&A deals during period 2008-16 Announced hostile deals1 1 Hostile deals (including withdrawn deals) with initial target board attitude as hostile, includes deals more than $25mn only SOURCE: Dealogic Value $ bn Number of deals 490 124 3949 166 -66% 84 -32% 1979 -50% 245 48% 99 18% 2479 25% 186 -24% 104 5% 1788 -28% 116 -37% 89 -14% 1309 -27% 157 35% 61 -31% 2573 97% 662 321% 75 23% 8820 243% 614 -7% 67 -11% 9165 4% Deal value (bn) % change Number of deals % change Average deal value (mn) % change 800 200 100 0 600 200 0 400 2008 $ 490 2012 $ 157 2011 $ 116 $ 186 2010 $ 245 2009 $ 166 $ 662 20142013 2015 $ 262 2016 $ 614 The incidence of withdrawn deals on hostile deals is more relevant ▪ Hostile M&A deals continued the trend and fell significantly in 2016 ▪ Average deal value remained high at ~4.3 Bn; way lower than 2014-15 levels 262 -57% 61 -9% 4295 -53% INCLUDING WITHDRAWN DEALS
  31. 31. 31Copyright © McKinsey & Company 31McKinsey & Company Contents: Year 2016 in M&A Key facts on global M&A Regional and cross-border M&A activity PE and hostile deals Key findings from “value creation in M&A” initiative
  32. 32. 32Copyright © McKinsey & Company Key insights on M&A value creation in 2016 SOURCE: McKinsey; Dealogic; Datastream; company reports 32McKinsey & Company Deal value creation declined slightly POP lower than long term average ▪ The POP index very slightly increased to 56%, vs. 55% in 2015, still lower than the long term average of 58%. The pop index is the proportion of acquirers with negative share price impact in a given time period, suggesting investors perceive them to have over-paid. ▪ Deal value added (DVA) declined in 2016 to 8.4% vs. 9.8% in 2015; it is still above the long-term average of 6.7% ▪ Target DVA increased slightly to 10.1% vs. 9.5% in 2015 but still shy of the long term average of 10.2% ▪ Acquirer DVA turned negative from 0.3% in 2015 to -1.7% in 2016 ▪ The difference between DVA for cash-and stock-financed deals also increased during 2016, ending at 18.3% spread vs. 14.7% in 2015, higher than long-term average of 13.8%
  33. 33. 33Copyright © McKinsey & Company We analyzed the value creation at M&A deal announcement for around 2,235 transactions in the past 19 years SOURCE: Dealogic; McKinsey Criteria for inclusion ▪ Both the acquirer and target must be listed companies (to capture price change of both at announcement) ▪ Transaction value more than $500mn to ensure relevance and likely liquidity of both company shares ▪ 19-year time frame (1997-2016) to capture transactions in two M&A boom cycles (and bust in between) ▪ Full (100%) acquisitions only to avoid distortions from partial deals ▪ Target size at least 5% of acquirer value to ensure significance of deal on acquirer share price ▪ Assess whether M&A deals create value for target and acquirer companies at announcement ▪ Review key trends in value creation (e.g., current M&A boom vs. previous boom) ▪ Are acquirers demonstrating more discipline in overpaying? Overall goal Resulting sample ▪ 2,235 transactions ▪ Deals announced from January 1, 1997 to December 31, 2016 ▪ Total value $12.0 trillion ▪ Average deal size $5.3bn ▪ Split by acquirer region Number of deals ▪ Americas – 63% ▪ EMEA – 23% ▪ APAC – 14%
  34. 34. 34Copyright © McKinsey & Company Total DVA of 8.4% for 2016 is slightly lower than that of 2015; still higher than the long-term average of 6.7% Average DVA index 2000 – 2016, % 1 For M&A involving publicly traded companies; defined as combined (acquirer and target) change in market capitalization, adjusted for market movements, from two days prior to two days after announcement, as % of transaction value SOURCE: Dealogic; Datastream; McKinsey 6.7 154133 89 39 49 78 93 206 102106 77 114 98 77 129 200720032002 20112000 2001 2014 4 2012 8 16 -4 12 -8 2016 0 2015201020082006 200920052004 2013 DVA1 % Number of dealsxx Average,% 182 154
  35. 35. 35Copyright © McKinsey & Company The POP index rose slightly to 56% in 2016 close to the long term average % of deals with negative abnormal acquirer share price impact 1 Proportion of overpayers SOURCE: Dealogic; Datastream; McKinsey 2002 2005 2014 201620082003 2010 30 20122009 40 20152013200720042001 201120062000 70 60 50 80 POP1 % 154133 89 39 49 78 93 206 102106 77 114 98 77 129 182 154 58 Average,% Number of dealsxx
  36. 36. 36Copyright © McKinsey & Company Average Deal value added1 – Target and acquirer, Percent Acquirer DVA turned negative - still above long term average; Target DVA close to long-term average 1 For M&A involving publicly traded companies; defined as combined (acquirer and target) change in market capitalization, adjusted for market movements, from two days prior to two days after announcement, as % of transaction value SOURCE: Dealogic; Datastream; McKinsey Total DVATarget DVAAcquiror DVA 16 12 8 4 0 -8 -4 -12 -16 -20 141312 201611 1502 06 0701 05 0908 10032000 04 10.2 6.7 -3.5 Number of dealsxx 154133 89 39 49 78 93 206 102106 77 114 98 77 129 182 154 Average,%
  37. 37. 37Copyright © McKinsey & Company Average Deal value added1 – Target and acquirer, Percent The difference in DVA between pure cash and pure stock deals increased to 18%, much higher than long term average difference of 15% pts. 1 For M&A involving publicly traded companies; defined as combined (acquirer and target) change in market capitalization, adjusted for market movements, from two days prior to two days after announcement, as % of transaction value SOURCE: Dealogic; Datastream; McKinsey DVA pure stock dealsDVA Total DVA Pure cash deals -10 20 0 5 10 15 -5 25 30 -15 10 20160502 042000 09 1106 1412 151308070301 Average,% 154133 89 39 49 78 93 206 102106 77 114 98 77 129 182 154 14.2 6.7 0.4

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