UK merger and acquisition deal value may fall to $125bn in 2017 amid Brexit and weaker economic growth

The UK could see a decline in merger and acquisition (M&A) activity in 2017 as compared to the previous year, according to the latest 'Global Transactions Forecast' report by Oxford Economics and Baker McKenzie.

The report, which was published on Monday (16 January), said this forecast was amid expectations of a weaker economic growth and Brexit uncertainty in 2017.

It forecasted a fall not only in the number of deals, but also in the total value of M&A deals in 2017. According to the study, M&A deals worth $125bn (£103.92bn) worth are expected to be closed in 2017. This value is about 63% lower than the $340bn figure of 2016. It is also lower than the previous 2017 estimate of $265bn.

However, the report added that M&A activity would rise moderately in subsequent years to touch $150bn by 2020.

Giving sector-specific details, the study said that M&A across the UK finance and industrial sectors might face a higher degree of risk in the event of difficult Brexit negotiations.

It, however, added that this uncertainty will not impact rest of Europe. "Although we forecast M&A activity in the UK to drop sharply in the next few years as investors wait for details to emerge about the UK's new trading and financial relationship with Europe, the rest of the region is poised to recover," the report said. It forecasted deal values in Europe excluding the UK at $459bn in 2017 and $613bn in 2018. This is much higher than the $319bn seen in 2016.

The report also forecasted a drop in total M&A activity across the globe. It said total deal value will drop to $2.5tn in 2017 from $2.8tn in 2016. It said dealmakers across the globe had become cautious amid volatility in the US stock market, concerns over China's economic slowdown, dropping oil and commodity prices, Brexit vote and Donald Trump winning the US elections.

The study said that once there would be clarity on both the new UK-EU relationship and the policies on trade and investment by the new US administration, there would be a pickup in M&A activity. It said that by 2018, deal values from such activity could grow to a peak of $3tn.

With regards to IPO activity, which slowed in 2016, the report said this would rise modestly in 2017 and bounce back in 2018 and 2019. It explained that many companies that had earlier postponed their listing plans would now return to the public capital markets. It forecasted global IPO activity to rise to $168bn in 2017, up from the $131bn seen in 2016.