By Greg Roumeliotis and Pamela Barbaglia
NEW YORK/LONDON (Reuters) - The value of announced mergers and acquisitions (M&A) worldwide dropped by a third in the second quarter of 2016, as a wave of transactions were abandoned in the wake of concerns over regulatory and tax risks or national security.
While 2015 was a record year for M&A, 2016 is shaping up to be a record year for 'broken' deals, as the United States flexes its antitrust muscle and seeks to crack down on deals that aid tax avoidance or risk harming national security.
Such upsets have caused company executives to think twice before contemplating complex deals that could attract government scrutiny.
Coupled with market volatility triggered by Britain's vote to leave the European Union last week, this has dented some of the confidence required by corporate boards to approve deals.
"This year companies have been reluctant to take on meaningful regulatory or tax risk or to pursue unsolicited transactions to the same extent that many companies did last year. The fact that a number of those deals were not ultimately successful has undoubtedly had an impact," said Gary Posternack, global head of M&A at Barclays Plc
Last year's biggest deal, U.S. drug maker Pfizer Inc's
U.S. oilfield services providers Halliburton Co
In February, Koninklijke Philips NV
Such moves affected new dealmaking.
Announced global M&A deals reached a value of $839 billion in the second quarter, down 32.5 percent from a year ago but up 14.2 percent from the first quarter of 2016, according to preliminary Thomson Reuters data.
The second quarter's biggest deal was German chemicals and life sciences company Bayer AG's
Other deals this quarter included Abbott Laboratories'
Weighing on M&A has been the recent negative reaction that acquirers have seen in their stock price following a deal announcement. This may be partly due to companies paying more on average to buy companies this year than they did last year.
After declining to 25 percent in 2015, their lowest level since 2006, bid premiums increased to 34 percent this year, modestly above the long-term average of 33 percent, according to a research note this week by Goldman Sachs Group Inc
"It's too premature to say if the Brexit decision will cause any slowdown in global M&A activity. The key drivers of a healthy dealmaking environment remain: the need to supplement limited organic growth with M&A, the opportunity to improve margins by realizing synergies, and the availability of low-cost capital to finance acquisitions," said Matt McClure, Goldman's co-head of M&A in the Americas.
BREXIT JITTERS
Dealmaking in Britain, which accounts for 7.0 percent of global M&A volume, has suffered, with M&A announcements down 85 percent year-on-year in the second quarter.
"Brexit is likely to have an impact on M&A going forward. It has increased market volatility and negatively impacted the global economic outlook. Ongoing uncertainty will inevitably lead to a more cautious approach to M&A for the rest of the year," said Adrian Mee, Bank of America Corp's
European M&A deals were down 41 percent in the second quarter to $147.3 billion. The United States, the world's biggest M&A market, was also down 23 percent to $421.8 billion.
"While recent volatility, headline-induced uncertainty and macro headwinds may create a challenging environment for global deal flow, we expect U.S. focused M&A to remain relatively strong," said Vito Sperduto, head of U.S. M&A at RBC Capital Markets
Chinese companies have continued to be a major driver of dealmaking activity. China outbound cross-border M&A totalled $121.1 billion so far this year, already surpassing the full year record of $111.5 billion set last year.
(Reporting by Greg Roumeliotis in New York and Pamela Barbaglia in London)
