Baker McKenzie: Prepare for a Downturn in M&A

The Chicago-based law firm issues its key projections for 2020

Baker McKenzie released its latest report, Global Transactions Forecast 2020: Powering Through the Downturn. The report addresses topics around M&A trends, IPO growth, and global GDP in 2020.

This report examines M&A markets around the world and lays out the firm’s projections for 2020. Baker McKenzie looked forward and stated that the rising risk of a global recession has prompted economic uncertainty and will dampen M&A activity next year. However, it did suggest a speedy recovery would follow.

“…macro indicators should improve from 2021, as the global economy will stabilize, financial market volatility will subside, and a weakening dollar will improve liquidity. This should lay the foundation for a gradual rebound in M&A activity,” the report reads.

Baker McKenzie on IPO Activity

The firm also expects a similar downtrend in IPO activity. Still, it acknowledged that a successful Saudi Aramco IPO could provide a sizeable one-off bump in total volumes for 2020. This IPO bump could bring total IPO volumes of $215 billion up from a projected $152 billion in 2019.

The U.S. has been stronger than the rest of the world in terms of both deals and IPOs. Still, a slowing economy and greater political uncertainty surrounding the 2020 elections are causes of concern. Baker McKenzie expects to see volumes slow down next year. Europe will also most likely see a decline in deal volume. The European market continues to deal with a weak economy and Brexit concerns.

Baker McKenzie expects that Asia will see moderate growth. Further, Latin America should see M&A volumes improve next year if political considerations begin to improve. The report highlighted the need for Argentina to emerge from its recession. Finally, the Middle East would see improvement if the regional geopolitical factors remain steady.

Global GDP in 2019 and Beyond

The firm also thinks we will see slower growth next year. It pegs global GDP growth at around 2.5% in 2019, a figure that drops from 3.2% in 2018.

“That will make 2019 the slowest year since the tumultuous financial crisis of 2008-09,” the report says. The firm acknowledges the risk of a recession exists. However, the report suggests that markets can avoid such a downturn.

“While we cannot ignore the risk that a recession could be brewing, our baseline assumption is that the economy will experience a relatively modest cyclical slowdown,” it reads.

To see the full report, visit here.

[Related: Here’s What Negative Interest Rates Would Do to the Community Banking Industry]



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