2016 - A Financial Reap
As we leap into 2017 and begin to look at the future ahead, we must also look at some of the most impactful events that occurred in 2016. While a full narrative of 2016 could fill a book, this is just a brief overview. The exciting part is that 2016 has set the stage for robust M&A activity in 2017.
2016 began with Wall Street indices declining a record 10% in the first two weeks of trading, which marked the worst two week start for the stock market in history. This downward spiral could be attributed to China’s slowing economy and depreciating currency. As the stock market continued to plunge, oil followed suit, dropping to below US$30/barrel early in 2016. The amalgamation of falling stock prices and a huge oil oversupply were the driving forces to the massive drop from the 2014 fourth quarter price of approximately US$100 per barrel. Throughout the year we saw a rebound in not only stocks, but oil as well, primarily due to the supply rebalancing and various OPEC agreements limiting production in 2017.
The next major event came in June, when we saw the UK vote to leave the European Union, causing massive unrest regarding the future of markets and international trade. US markets fell in the days following Brexit, but rebounded in a rally that erased the initial decline.
As a whole, 2016 was the worst year the US has seen for IPOs since 2003, with capital raised from new issues down 40% from 2015. According to Jonathan Gertler, CEO and managing partner of Back Bay Life Sciences Advisors, there is no debate on whether the IPO market is softer than in recent years, and he believes it to be mainly due to volatility in the US economy and “an exuberant market that drove valuations exceedingly high,” in the biotech industry specifically. He went on to say that in the current market there is an abundance of uncertainty, which does not bode well for high-risk stocks, newly public companies specifically.
A portion of this uncertainty that Gertler spoke about can be attributed to the surprise election of Donald Trump, as many firms and businesses prepared for an economy with Hillary Clinton in the oval office. On November 8th, we saw the markets being agitated as the polling numbers continued to pour in favoring Trump, but this rally continued to build upon itself through the holidays. Major indices saw gains of between six and twelve percent through the end of year as many traders continued to bid up stocks as they “saw” deregulation, lower taxes, and increased infrastructure spending in the near future.
As the markets have improved since the Nov. 8 election, the Federal Reserve decided to raise interest rates by 25 points in December. Many believe the rate hike was a product of higher home prices, decreased unemployment, and improved confidence in the market that led to the Nov-Dec rally following the election. Traders currently expect around two or three additional rate hikes for 2017, and according to the December Fed meeting minutes, rate hikes may be higher than previously expected in order to better control the growth of the economy.
In the final days of 2016, markets hit records highs, with the Dow coming ever so close to the 20,000 mark, which many investors believe is simply a psychological barrier. While 2016 had many quick turns and shocks (Brexit, Trump, etc.), the market and economy as a whole were able to come out on top in terms of growth and prosperity.
The stock market exuded great resiliency in 2016, which began with a record-setting worst market performance in history to finish at record highs and prepare the US for a prosperous 2017.
With regard to M&A activity, 2016 was the third best year ever; however, M&A decreased between 16 and 20 percent from 2015 levels. M&A activity is expected to be exceptionally strong over the next two or three years, but will peak in 2017. Therefore, people interested in completing a transaction should execute now.
Versailles Group, Ltd.
Versailles Group is a 30-year-old boutique investment bank that specializes in international mergers, acquisitions, and divestitures. Versailles Group’s skill, flexibility, and experience have enabled it to successfully close M&A transactions for companies with revenues greater than US$2 million. Versailles Group has closed transactions in all economic environments, literally around the world.
Versailles Group provides clients with both buy-side and sell-side M&A services, and has been completing cross-border transactions since its founding in 1987.
More information on Versailles Group, Ltd. can be found at www.versaillesgroup.com.
For additional information, please contact
Founder and President - Versailles Group, Ltd.
11 January 2017