Global M&As Outlook 20181:

The global M&A market remained strong in 2018 with announced transaction volumes reaching $4.1 trillion, the third highest year ever for M&A volumes. Announced volumein the first half of 2018 was robust, representing the second highest first half of all time ($2.4 trillion). Activity was largely driven by megadeals (greater than $10 billion in size). Thirty megadeals were announced in the first six months of 2018 the highest first-half megadeal count on record compared with 14 deals in the first half of 2017. The number of megadeals began to normalize throughout the second half of the year, although they continued to be a significant driver of activity in 2018 (overall up 38%, 44 deals in 2018 compared with 32 in 2017, the second highest in the past 10 years).

1 Collected from 2019 Global M&A Outlook: Unlocking Value in a Dynamic Market published by J.P.Morgans M&A team in January, 2019

While megadeals were a large driver of M&A announced dollar volumes in 2018, the count for deals greater than $250 million also increased by 7% from 2017, with activity remaining robust across all deal types. Activity was brisk across domestic and international deals, strategic and private equity, and across all sectors, with technology (17%) and healthcare (12%) representing the largest contributors to global volume in 2018. Private equity funds continued to have ample dry powder and deployed this capital throughout 2018; sponsor buy-side volume was up 9% YOY.

Several of the key drivers and catalysts of M&A have continued from prior years.Positive

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global growth, improving cash flows, strengthening balance sheets, low cost of debt, investor support and CEO confidence all continued to boost M&A activity. The biggest new tailwind this year was the implementation of tax reform in the U.S., which helped generate incremental cash flows and provided access to overseas funds.

Innovation, disruption and the need for growth also contributed to M&A activity,driving change across industries, geographies and organizations. An accelerating rateof disruption has driven the need to act with urgency. As a result, new consumption patterns, new platforms and new business models are resetting the basis of competition, redistributing industry economics and reallocating value. Weve seen a drastic increase in the technology sector over the past decade, more than doubling its share of the overall M&A market (from 6% in 2007 to 17% in 2018) as the sector continues to innovate to meet changing demands.

While geopolitical uncertainty was prominent throughout the year and created many headlines, it had limited effect on deal volumes in the first half of the year but may have contributed to the deceleration of activity toward the end of 2018. Meanwhile, cross-border M&A volume remained strong, accounting for 30% of the total M&A market, but with a different mix: China outbound M&A continued to decline (down 23% YOY), while Japan outbound M&A was robust throughout the year, with a record $184 billion in announced volume and a record number of deals larger than $1 billion (30 deals in 2018 versus 18 in the previous year). However, Japans activity benefitted disproportionately from Takeda Pharmaceuticals acquisition of Shire for $81 billion.

The regulatory environment remained challenging as large deals took longer to close, including Monsanto/Bayer (746 days), Linde AG/Praxair (681 days) and Time Warner/AT&T (601 days), or were withdrawn entirely in the case of Qualcomm/Broadcom, NXP/Qualcomm and Ant Financial/MoneyGram. Meanwhile, regulation of foreign

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investment in the U.S. continued to increase as Congress expanded the range of transactions governed by the Committee on Foreign Investment in the U.S. (CFIUS) in August.

The U.S. equity market continued to climb throughout 2018 and reached record levels. However, its performance in Q4 partially relieved investor concerns on overpaying for assets and has presented buying opportunities for potential acquirers. After the P/E ratio of the S&P 500 hit its peak at the beginning of 2018, its pullback has allowed potential acquirersto pay a premium without breaking new ground on price.

China remains active in the global M&A market2:

With the backdrop of a Sino-U.S. trade war and heightened CFIUS scrutiny, Chinas outbound M&A volume in 2018 suffered its second straight year of decline (23%) after the super-peak in 2016. Despite this decrease, 2018 China outbound M&A volume was still roughly one-third higher than the levels before the 2016 peak in terms of total deal values.

Moderation in Chinas economic growth continues to drive the need to identify attractive growth opportunities abroad. Reasonably abundant capital availability and financing alternatives still enable Chinese acquirers to have strong purchasing power. There were many large-scale outbound transactions in 2018, including ANTA Sports proposed $6.4 billion acquisition of Amer Sports. Recently, Jingye Group has announced on Monday (11/11/2019) that it had agreed a deal to rescue British Steel, the UKs second-largest steelmaker. Jingyes move to buy British Steel marks a significant departure from its current operations, which are based almost entirely in Hebei.

The purchase comes as the Chinese government continues a multiyear campaign to tackle

excess steelmaking capacity in part by pressing companies to move production away from the

2 Collected from 2019 Global M&A Outlook: Unlocking Value in a Dynamic Market published by J.P.Morgans M&A team in January, 2019 and Financial Times published on 13/11/2019

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industrial heartlands, which has made companies such as Jingye increasingly turn to international markets. UK steel industry insiders and unions have raised doubts about Jingyes ability to turn round British Steel after so many others have failed, given the high costs of labour and power in the UK, as well as weak European demand.

But as a sizeable family-owned enterprise with experience in steelmaking, Jingye may in fact be a good match for British Steel, said Mr Johnson. Hebei is the equivalent of Scunthorpe or South Wales in China. They may be better suited than an investment company that knows less about the industry.

Jingye has pledged to invest 1.2bn in the struggling British steelmaker and said in a presentation to the company seen by the Financial Times that it hoped to cut costs and ramp up production.

Please answer the following questions:

1. Critically assess the effect, if any, of the global financial crisis on M&A activities

between 2002 to 2018. (30 Marks) 2. Critically explain the reasons for the growth of global M&As over the time.

(50 Marks)

3. What do you understand by synergy? Critically explain the sources of synergy in the Jingye and British Steel acquisition deal. (20 Marks)

Total 100 Marks

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