What’s driving deals

‘Still India’s decade’

Activity has picked up in India following a cautious 2024 spent awaiting the outcome of the country’s election. Now that a new government has been formed there’s a significant amount of corporate activity taking place in India, across capital markets, M&A and start-up funding. Growth is expected across various sectors, including infrastructure, financial services, technology and gaming.

Deals are driven by the capital markets. Many companies are trying to list on the market and want to get the best valuation before they do. ‘There are all kinds of deals in the market that are happening with the end [goal] of being able to list a better company’, explains Kosturi Ghosh, Membership Officer of the IBA Corporate and M&A Law Committee. This trend is expected to continue because the capital markets are a well-tested exit route for investors and currently offer the best valuations.

It’s predominately domestic activity driving growth, as foreign investment, particularly strategic investment, has declined. A trend is emerging whereby Indian companies that were previously domiciled outside the country are redomiciling in their home jurisdiction to be able to list on the market. One of the reasons Indian listings are attractive is because the regulatory burden is considered to be less than in other jurisdictions such as the US.

Rabindra Jhunjhunwala, Conference Coordinator Asia Pacific for the IBA Corporate and M&A Law Committee, believes political stability and being well-positioned diplomatically has brought success to India. ‘There has been a paradigm shift in the way the government functions and operates’, he says. India has also benefited from a move by companies globally to look beyond China to alternative jurisdictions.

Jhunjhunwala, who’s also a partner at Khaitan & Co in Mumbai, adds that the Indian government wants to be a powerhouse in respect of industries that’ll be part of the energy transition, such as green hydrogen, solar energy and electric vehicles. This, he believes, will propel India forward for a long time.

A new ‘deal value threshold’ has been introduced in the country, which requires the Competition Commission of India’s (CCI) approval of deals exceeding INR 20bn (~$238m) in value where the target has substantial business operations in India. This will bring more deals under the purview of the CCI, especially those in the technology sector, which are often based on untested valuations rather than assets. Ghosh, who’s a partner at Trilegal in Bengaluru, says this change may affect deal timelines, but she doesn’t believe it’ll alter the number of transactions being carried out.

In recent months the Indian markets have seen a slight slowing due to geopolitical factors such as the implications of the Trump presidency for the country and the impact of the war in Ukraine. Ghosh says if India isn’t able to buy oil from Russia, for example, government spending would decrease, which may have implications for the private economy.

Rates of consumption are falling in India, meanwhile, which means private companies aren’t expanding capacity. Indian consumers are buying fewer everyday essentials, which for Ghosh indicates a problem in the economy that’s leaving workers with less purchasing power.

Overall, Ghosh believes this year will see fewer M&A deals in India and much regulatory activity, particularly regarding the enforcement of competition and labour laws. A new privacy law – the Digital Personal Data Protection Rules – is also expected in 2025, which companies will need to understand and comply with.

Jhunjhunwala is very positive, meanwhile, about India’s future. ‘As it stands, it is still India’s decade, and more’, he says. He adds that many of the larger Indian companies are interested in overseas deals – something for lawyers to look out for.

Japan’s increasing openness

Levels of corporate activity in Japan have increased and remained high over the last few years, and that trend is set to continue. Private equity companies are active in the Japanese market. In contrast to some other jurisdictions, the cost of financing in Japan has remained low due to the level of interest rates. The Japanese economy is very steady, which is attractive to investors.

Many Japan-listed companies are considering going private. ‘The broad trend in the Japanese market is going-private transactions of listed companies by private equity or the management of the company [through a] management buy-out’, says Kenichi Sekiguchi, Conference Coordinator Asia Pacific for the IBA Corporate and M&A Law Committee.

There’s been an increase in outbound activity, for which the US is the favoured destination. This trend is expected to continue. ‘Japanese companies continue to view the US market as the most important market outside of Japan’, says Sekiguchi, who’s also a partner at Mori Hamada & Matsumoto in Tokyo. Inbound activity from all overseas jurisdictions is also expected to increase, with the largest proportion coming from the US.

Some major Japanese conglomerates are focused on divesting their non-core assets, including listed subsidiaries, so they can concentrate on their core business.

Two years ago, the government established guidelines for directors of Japan-listed companies when they receive an unsolicited offer. These guidelines aim to encourage fair M&A that creates value. Under them, if an offer is credible and backed by proper financers, the company’s management is obliged to consider it and, at the very least, put it on the board’s agenda.

Historically, Japan has had strong anti-hostile takeover measures, and the new guidelines on unsolicited offers mark a change in climate. Yuki Oi, Young Lawyers’ Committee Liaison Officer for the IBA Corporate and M&A Law Committee, says that in recent years the balance had been too much in favour of the defence side in a takeover situation, which was discouraging unsolicited offers. As such, the government wants to shift to a more equal balance between the two sides.

The Tokyo Stock Exchange (TSE) has also taken measures to ensure the management of Japan-listed businesses are conscious of the cost of capital and the company’s stock price. In doing so it aims to address the fact that many Japan-listed companies are trading at a price-to-book ratio – the metric used by investors for evaluating if shares are reasonably priced – of less than one. The TSE has established a policy goal for that ratio to be above one.

According to Sekiguchi, these changes have been made because there’s too many companies in certain industries in the Japanese market, which makes it difficult for the country’s businesses to compete globally. The government is therefore pushing M&A in these sectors to make them more competitive. Oi, who’s a partner at Nishimura & Asahi in Tokyo, says Japan ‘definitely needs those industrial concentrations’.

Sekiguchi believes Japan is becoming more open to foreign investment both from a regulatory and cultural perspective. Oi highlights the growing strength of the Japanese capital markets and says chief executive officers of listed companies will need to be more sensitive of their share price and their shareholders.

China optimises its investment requirements

Despite facing geopolitical challenges, China continues to see both inbound and outbound investment and M&A activity. Recently, growth has slowed as deal sizes have reduced, but levels of activity are gradually increasing. ‘Despite all these challenges, there are still many businesses continuing to invest into China’, says Shirley Fu, a partner at Charles Russell Speechlys in Hong Kong.

The Chinese government is keen to promote foreign investment, which has increased following the introduction of dedicated legislation in 2020 and a gradual reduction of the country’s negative list, meaning that fewer sectors are restricted or prohibited to non-Chinese investors. Under 2020’s Foreign Investment Law, China has set out a ‘national treatment’ regime whereby foreign and domestic investors are treated equally, subject only to limited exceptions provided in the negative list.

China plans to further refine the negative list to expand market access to foreign investors into, for example, science and technology, and to allow wider participation by non-Chinese financial institutions in the banking and insurance industry. ‘The Chinese government has become more welcoming of foreign investment than ever before’, says Tom Wong, a senior legal manager at Charles Russell Speechlys in Hong Kong.

Chinese outbound investment will probably continue over the next decade with policy support from the government through schemes such as the Belt and Road Initiative, the country’s major global infrastructure development strategy. Eastern European countries such as Hungary and Poland, as well as Southeast Asian jurisdictions like Singapore, are expected to be the focus of Chinese outbound investment. Overseas investment will probably be in high-tech, high-end manufacturing and consumer goods, which are increasingly important to the Chinese economy.

There are signs that the Hong Kong equity capital market is recovering after a significant drop in new listings since 2021. The number of listing applications has increased, partly because the authorities in mainland China have encouraged Chinese companies to make an initial public offering (IPO) in Hong Kong. ‘If this trend continues, Hong Kong may regain its place as one of the world’s top three IPO markets in 2025’, says Victoria Younghusband, a partner at Charles Russell Speechlys in London.

In recent years, there have been some notable regulatory changes in China – for example in relation to the security and the protection of personal data, competition and ESG – that’ll probably affect corporate activity and increase the compliance burden for businesses in China.

In the coming years, companies will need to navigate a more complex regulatory landscape, particularly in sectors such as technology, telecommunications, healthcare and finance. As China continues to optimise its legal requirements for foreign investment, the Chinese government will probably issue more detailed regulations in the future. Fu says that when it comes to investing into China, ‘it’s all about managing risk’. Those companies that feel they can comfortably manage the relevant risk through taking proper legal advice should continue to consider doing business in the country, she says.

United Kingdom

More deal activity is expected in the UK this year, building on momentum from 2024 after a quieter 2023. There’s good value for acquirers in the public markets and take-private activity is expected to continue. There may also be more strategic acquisitions or mergers using stock consideration. Healthcare, financial services and the energy transition are all areas where activity is expected to continue in 2025.

There’s more stability for financing as inflation and interest rates have reduced. It’s possible for borrowers to see ahead in terms of what they’re borrowing and what they’re able to sustain. That’s reflected in pricing and means price and expectation can be more easily matched.

There’s also pent-up demand for exits from investments on the private equity side. This might lead to a more even balance between sponsor-driven and strategic M&A. More private equity activity could also lead to further opportunities for strategic acquirers because it’ll create additional opportunities to buy assets.

The role of activism

Shareholder activism – whereby an individual seeks to use their equity stake to effect change within a company – is expected to continue and is no longer viewed solely as a US phenomenon, having become a mainstay in the UK. ‘When we’re organising ourselves globally now, we think about activism on a global basis and it’s present in many of the geographies’, says Andrew Hutchings, co-head of the Global M&A practice at Freshfields in London. Activism can prompt M&A, either in anticipation of that activity or as a response to it.

UK activism covers strategy in a broad sense, probing a business on its activities and suggesting alternatives in a bid to maximise returns. The activism threat means businesses need to own their strategy and articulate it to their investors clearly and regularly.

Partly in response to the activist agenda, UK boards are keen to focus on their core business activities. This is leading to spin-off or carve-out transactions where an organisation seeks to exit non-core areas of the business, either through a new listing or a disposal.

Claire Wills, a partner at Freshfields in London, highlights that the UK market is being undervalued as a driver for takeover activity. UK shares have been seen to be relatively cheap compared to peers in other markets, particularly the US.

Wills says UK businesses ‘are really thinking about what they should be doing for growth and for scale’ in order to defend against either an activist threat or a potential acquirer. M&A flows suggest potential acquirers are most likely to come from the US.

A return to UK IPOs

Hutchings is optimistic about London as a listing venue. He doesn’t expect a rush of IPOs but is confident there will be a return to London market offerings. ‘There’s a lot of value in the quality of a London listing’, he says, ‘and the quality of governance that it brings’.

Hutchings says that for many companies the UK is the right place to list, in contrast to the US where in order to gain any benefits you need to be a large company, typically one with significant business in America.

Valuations on the FTSE stock market index are beginning to look favourable again. Healthy capital markets are an important part of the UK deal transaction ecosystem because for some investors the public markets are their exit route. For private equity investors, knowing that, as well as a sale, there’s a potential IPO exit from their investment helps create confidence to carry out transactions. Pent-up demand for the opportunity to list in the UK should play out over the coming year.

The UK government’s growth agenda is also positive for UK listings. Its approach to regulators – for example, encouraging the Competition and Markets Authority to streamline its processes and speed up decision-making ¬– appears beneficial for deal activity. Recent changes to the UK listing rules, made by the Financial Conduct Authority in summer 2024, have also helped foster activity.

Quillen expects more flexibility and an easing of restrictions on executive compensation rules and guidance in the UK. This will differentiate the UK from the EU and help it to compete more effectively with the US.

He also says Middle Eastern enterprises are particularly active in IPOs and other equity capital raises. Middle Eastern governments and businesses have also been dynamic recently in terms of dollar debt capital raising. There’s often a strong London execution and listing element for regional equity and debt securities, in combination with Dubai. As such, strong capital markets activity in the Middle East is providing a stimulus for London.

In the short term, US tariffs may slow down UK activity a little. However, Hutchings argues that deals are usually done for the long term and that the strategic benefits of cross-border M&A will remain. He sees the US as a financial force and expects a significant amount of outbound activity from there. Wills says that geopolitical uncertainty might lead to more domestic or regional transactions.

Germany

Germany has seen a slowdown in M&A activity over recent years as investors have looked further afield to jurisdictions such as India or Japan. ‘Investors have been, certainly over the last two years, somewhat hesitant to deploy funds into Germany’, says Hans-Jörg Ziegenhain, a Member of the IBA Corporate and M&A Law Committee Advisory Board.

That’s not to say deals aren’t being done. The German corporates that usually sell assets in international transactions are continuing to work on reorganisations and on improvements of their structures, for example. There’s also an expectation that purchasers and inquirers will return to Germany.

Deals that allow organisations to focus on their core business, such as carve-outs and spin-offs, remain on the agenda for large conglomerates in Germany and won’t go away. There are many large corporations in Germany, and they’ll continue to reorganise and restructure regardless of broader geopolitical factors.

‘It’s not a negative mood at the moment’, says Ralf Morshäuser, Senior Vice-Chair of the IBA Corporate and M&A Law Committee, ‘it’s more a reluctant and hesitant situation where fast M&A is very rare. Everything is a bit slower and takes a bit longer than in the past’. He adds that while the German market has plenty of activity, ‘it’s not the best market we could imagine at the moment, and this is certainly driven by political uncertainty’.

The recent election of a new government in Germany may help bring some certainty back to the markets, which should lead to increased commercial activity. However, the unpredictability of the Trump administration is another source of uncertainty, which could also be slowing the German markets.

Morshäuser, who’s a partner at Gleiss Lutz in Munich, says the uncertainty may also be slowing private equity activity, which can make it harder to evaluate a business plan and reach a valuation, and then get to a transaction. Higher interest rates and loans not being readily available to investors could also be factors affecting private equity activity in Germany.

Morshäuser adds that the overall geopolitical environment could lead to regulatory restrictions that affect deals – for example, foreign investment control regimes that may mean fewer deals are done with jurisdictions such as China.

Important sectors and slow exits

The German car manufacturing industry has suffered some setbacks recently, such as restrictions on combustion engines and the rise of electric vehicles. This has triggered restructuring activity, which has had implications for M&A.

Meanwhile, Ziegenhain – who’s a partner at Hengeler Mueller in Munich – says one issue with the German market is a lack of sponsor exits, which means there aren’t sufficient returns for future investments. This makes it difficult to attract investors who want to be able to see a clear exit route from their investment.

Part of the issue is the success rate of IPOs in Germany, which for large-cap sponsor-held assets represents the most common exit for investors. Germany hasn’t had many successful IPOs in the recent past and not all of those that went ahead maintained the issuance price after flotation.

In contrast, jurisdictions such as the Netherlands, the UK and the US have seen more successful IPOs than Germany. Ziegenhain says that’s ‘a real drawback that needs to improve midterm in order to attract investors’ for whom there must be certainty that they can float the business at a later date and therefore exit their investment.

‘Germany is at a crossroads’, explains Ziegenhain. He believes there may be transitions as some car manufacturers move into the defence sector, which itself will probably receive increased investment. Such transitions could take place where there’s a relevant crossover and will generate more deals. Ziegenhain also believes the ongoing energy transition will result in deals in the coming years. Finally, he highlights the important role of infrastructure projects within deal generation. ‘Infrastructure at large will call for M&A activity’, he says.

Rachael Johnson is a freelance journalist and can be contacted at rachael.editorial@gmail.com

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