VENUE ® ® Market Spotlight

December 2017 Edition

2018 OUTLOOK

VENUE® Market Spotlight: 2018 Outlook

Dear Valued Reader,

Welcome to the December 2017 edition of the Venue Market Spotlight. This month, we ask global dealmakers and finance professionals for their predictions for M&A activity in the coming year.

Uncertainty has been a strong characteristic of 2017, with the swearing in of a new US administration, continued Brexit negotiations and increased restrictions on international trade out of China all giving dealmakers cause for concern. This unease has seen M&A volume fall from 16,816 deals for the first 11 months of 2016 to 16,177 in the same period this year. Over the same time frame, value has also dropped to US$2.6tn for 2017 compared with US$2.95tn last year.

The widening valuation gap between buyers and sellers, coupled with a number of high-profile failed deals, such as Dutch paint maker Akzo Nobel’s failed US$30bn tie-up with competitor Baxalta, have added to the overall political volatility. This has created an environment in which dealmaking has been more sporadic than in the past three years. However, this month’s Spotlight shows that dealmakers are not concerned, predicting that both the volume and value of M&A deals will increase in 2018.

Despite the fall in deal activity, there have been a number of regional and sectoral highlights. North America has been a consistent high performer as megadeals, such as the US$30bn acquisition of avionics maker Rockwell Collins by aerospace and industrial company United Technologies, helped to bolster numbers. Spotlight respondents feel that the region will continue to maintain the highest level of deal activity in 2018.

As we look to the close of an uncertain dealmaking year, we hear every day from our loyal clients how important it is to partner with providers that provide stability for their business. As we close out our first year as a stand-alone financial services company, at Donnelley Financial Solutions we are ever more committed to remain one step ahead of our clients’ needs through our continued innovation, platform growth, and tailored focus on the needs of the global capital markets.

As always, please enjoy this month’s Spotlight and on behalf of Donnelley Financial Solutions, please have a happy holiday season.

Sincerely,

Craig Clay President, Global Capital MarketsDonnelley Financial Solutions

WELCOME

Foreword 3

Survey 4

Notable deals 12 in the room

About Donnelley 13 Financial Solutions

CONTENTS

Donnelley Financial Solutions is the sponsor of the Venue Market Spotlight. All information contained in this publication is for informational purposes only and should not be construed as legal, accounting, tax, or other professional advice of any kind, on any subject matter. Donnelley Financial Solutions expressly disclaims all liability in respect to actions taken or not taken based on any or all the content herein.

METHODOLOGY

In December 2017, Mergermarket interviewed 25 global dealmakers from across the corporate, private equity and investment banking communities for their views related to upcoming M&A trends in 2018. Respondents were split between the US (36%), Europe (32%), and APAC (32%).

3

In 2017 to date, we have seen US$2.6tn in M&A deals – a year-on-year fall in activity and US$350bn shy of the US$2.95tn achieved over the same period in 2016. Despite this fall in value — alongside rising valuation multiples and fears over a strengthening of antitrust regulation — the sentiment from our surveyed dealmakers is optimistic for the coming year, and the vast majority believe M&A and IPO activity will increase next year.

One of the key drivers of deals in 2018 will be the hunt for new technology. Nearly two thirds of respondents stated that technology development and innovation would drive dealmaking, while computer software and e-commerce would be the top sectors. Part of this rise is from non-tech companies buying start-ups and tech firms, as exemplified by J.P. Morgan Chase’s acquisition of payments company WePay for US$400m in October.

We are also seeing the reverse of this trend. Amazon’s acquisition of Whole Foods for US$13.7bn in June demonstrates the ongoing convergence between sectors and how the competition between tech and non-tech buyers could have a dramatic effect on the M&A market in 2018.

While 2017 has been something of a rollercoaster year – value peaks in Q1 and Q2, followed by a slide in Q3 – there is a pipeline of deals which could well encourage dealmakers. US pharmacy, retail clinic and online chain CVS Health has just closed a deal with health insurer Aetna for US$69bn that has the potential to transform the healthcare industry, aiming to make healthcare accessible over the phone, at a retail outlet or via an app.

Meanwhile, semiconductor firm Broadcom continues to put pressure on rival Qualcomm in a deal that could be worth US$105bn, making it the most lucrative in the semiconductor history.

Of our surveyed dealmakers, 68% of respondents expect global deal volume to increase in 2018, with 28% believing it will increase by 10% or more. Furthermore, 72% predict global deal value will also increase in 2018.

A growing global economy, healthy deal flow and greater clarity on a number of tricky political issues could add up to make 2018 a very interesting year for dealmakers.

Other key findings include:

FOREWORD

64% of respondents say that the biggest

deterrents to M&A activity in 2018 will be political instability in the US, Europe and Latin America.

When predicting which regions

or countries will see the greatest increase in deal activity, 64% name the US, while 48% name India.

68% say that the instance of initial

public offerings (IPOs) will increase in 2018, some 8% saying it will increase by 10% or more.

VENUE® Market Spotlight: 2018 Outlook

SURVEY

Q1 What will happen to global deal count in 2018?

After three blockbuster years for M&A in 2014 (17,609 deals), 2015 (18,152 deals) and 2016 (18,590 deals) – 2017 has seen something of a correction. Over the 11 months of the year to date, we have seen 16,177 deals, some 639 fewer than the same time in 2016. A drop, but still a strong performance in comparison to most early post-crisis years.

The majority of respondents believe that M&A activity will increase in the next 12 months, citing improvements in the economic and political outlook as catalysts for increased confidence in dealmaking. This has already been illustrated in Europe. In November, the IMF published its Regional Economic Outlook, which upgraded Europe’s real GDP growth to 2.4% from 1.7% in 2016. According to the report, “the European recovery is spilling over to the rest of the world, contributing to global growth.”

One managing director of a US investment bank agrees: “Compared to 2017, there’s going to be improvement. The clarity that investors want will be established by the beginning of 2018. Even though there’s still some uncertainty, a lot of it has been resolved this year. A big market like Europe is getting back in shape and that’s going to lead to an increase.”

In addition, a number respondents felt that the stores of cash on the balance sheets of major corporates and PE firms could very well drive the market next year, particularly as shareholders are agitating for companies to spend that money. According to S&P Global, US corporates currently hold more than US$1.9tn on their balance sheets.

“A lot of companies, investors, PE firms and buyers have harvested capital over the last two years. There’s going to be a more aggressive approach towards investments in 2018 as the funds required for such an approach already exist,” says a partner at a US investment bank.

Only 12% of respondents believe that the number of deals is set to decrease. Some respondents believe that there is still too much uncertainty in the market – the ongoing and turbulent Brexit negotiations are certainly evidence of this volatility.

28%Increase by 10% or more

40%Increase by 5-10%

20%

Remain within 5%of this year’s total

12%Decrease by 5-10%

Q1

5

56%Increase by 5-10%

20%Remain within 5% of thisyear’s total

8%Decrease by 5-10%

16%Increase by 10% or more

Q2Q2 What will happen to global deal value in 2018?

In 2017 (to November), we have seen US$2.6tn worth of deals – US$350bn shy of the US$2.95tn for the same period in 2016, and US$600bn short of the US$3.2tn value over the whole year. However, following annual value totals of US$3.2tn, US$3.8tn and US$3.2tn in 2014, 2015 and 2016 – this year had three very tough acts to follow.

However, 72% of respondents feel that 2018 will get the value statistics back on track, by 5% or more. More than half of respondents (56%) believe that the value of global M&A activity will increase in 2018 by 5% to 10% over 2017 deal values. Meanwhile, a fairly sizable proportion (16%) believe that overall deal value will increase by 10% or more.

The reasons for this perceived increase in value are similar to those for volume – a more stable global economy, improved market conditions and continued low capital costs. Many believe that these factors will push up valuations: “Acquirers will have to deal with larger valuations as the market will become more competitive and they will need to move quickly to avoid missing out on a suitable target,” says the managing director from an investment bank in China.

Only 8% expect to see a decrease in deal values, believing that dealmakers will continue to exercise caution, carrying out small-scale deals that will incur minimal risks.

Q3 Which countries or regions will see the biggest increases in M&A deal value in 2018 compared

to this year?

This year the US has seen just over US$1tn-worth of deals, some US$400bn shy of the same period in 2016. And the majority of respondents (64%) believe that the world’s biggest economy will see the greatest increase in M&A activity in 2018.

This sentiment is hardly surprising considering that the two biggest deals of the year to date (both valued at US$30bn) were executed by US companies – the United Technologies/Rockwell Collins deal, which will create aerospace giant Collins Aerospace Systems, and US healthcare firm Johnson & Johnson’s acquisition of Swiss biotech company Actelion.

VENUE® Market Spotlight: 2018 Outlook

Despite misgivings about the current US administration in certain quarters, respondents believe that conditions in the country are ripe for increased M&A – particularly domestic deals, given President Trump’s “America First” agenda.

“The US is financially strong and has the financial strength to process large M&A deals. The American market is going to see a rapid increase in domestic deals in 2018,” says the CFO of a US corporation.

Perhaps more interesting is the fact that almost half of respondents (48%) anticipate that India will see the biggest increase in M&A activity in the next 12 months. So far this year, India has seen US$47.4bn – a fall of 19.6% on 2016, in which the country saw US$59bn worth of deals. However, putting this into perspective, 2017 should see the second highest deal value figure since 2008.

A number of measures by India’s Modi government, including the recapitalization of public sector banks, the introduction of 37 new reforms, and simplifying the tax process, have contributed to the appeal of India as a business target. These measures helped India’s World Bank “ease of doing business” ranking to jump to 100 from 130 in 2016.

Indian M&A got off to a good start this year with the US$23bn merger between telecommunications companies Vodafone India and Idea Cellular. While deal volume dropped in Q3, there were 66 private equity (PE) buyouts worth US$7.4bn in total — the highest Q3 PE deal valueon Mergermarket record (since 2001). Respondents are optimistic that the activity seen earlier in the year was just a taste of things to come.

“India is the best place to make an acquisition,” says the head of M&A at a corporation in Switzerland. “The economy is booming and the demand for most of the industries is high. There is also an ease to investing in the country compared to the past.”

Q4 Which sectors will see the biggest increases in M&A deal value in 2018 compared to this year?

In deal value to date, technology media and telecommunications (TMT) is the second most active sector, boosted by deals in the computer software subsector, which in H1 2017 was responsible for 50.4% of all TMT deal count, and accounted for 35% of the sector’s total value. Contributing to these figures are deals such as enterprise software PE firm

Southeast Asia

Africa

Other, pleasespecify

Northern and Western Europe

Canada

Latin America

China

India

USA

16%

64%

48%

28%

20%

8%

8%

4%

4%

Q3 (select top two)

64% OF RESPONDENTS SAY THAT DEVELOPMENT OF TECHNOLOGY AND INNOVATION WILL BE THE TOP DEAL DRIVER IN 2018

7

ESW Capital’s acquisition of collaboration software company Jive for US$462m, Cisco’s acquisition of application analytics firm AppDynamics for US$3.7bn and Hewlett Packard Enterprise’s US$1.09bn bid for hybrid storage provider Nimble Storage.

With that in mind, 60% of those in our survey feel that computer software will be the sector that will see the biggest value increase in 2018. A number of executives pointed to the continued rise of mobile technology, and the culture of buying in knowledge rather than spending on research and development.

“Computers and mobile communication will turn out to be the greatest market players by 2020,”says the head of M&A at a UK-based corporation. “Investments in the following year will prove vital to be a part of the competition in 2020. All the acquisitions and mergers will be concentrated in both these sectors in 2018.”

Some 48% of respondents also believe that consumer and e-commerce sectors will see the biggest increases in M&A activity in 2018. The consumer sector was thrust into the spotlight this year with the disruption of the grocery retail space by Amazon via its acquisition of Whole Foods the most publicized of these deals.

The managing director of a Hong Kong-based investment bank is one respondent who believes the consumer and e-commerce sector will see big increases in M&A activity in 2018 compared to this year. “Economic stability directly impacts consumer spending ability, and this is going to be a positive push for the consumer sector in the coming year.”

Q5 What will be the main drivers of M&A activity in 2018?

Almost all sectors have been disrupted in some way by technology in recent years, illustrating the need for companies to keep pace. From the introduction of digitization and mobile technologies, to more advanced tech such as artificial intelligence and the Internet of Things, today’s dealmakers must be building their technological capabilities in order to remain competitive.

With this environment in mind, the majority of respondents (64%) predict that the top driver of deals in 2018 will be the desire to drive the development of technology and innovation.

Industrials &chemicals

Telecommunications

Pharma, medical& biotech

Financial services

Energy, mining& utilities

Consumer &e-commerce

Computer software

24%

60%

48%

32%

24%

4%

8%

Q4 (select top two)

VENUE® Market Spotlight: 2018 Outlook

“Technology is changing the way things work now. It’s giving a whole new structure to the different industries,” says one managing director at an investment bank in the US. “Technology is helping by increasing productivity and efficiency, therefore it’s going to be a primary driver.”

Technology is permeating all sectors, as the convergence trend continues and we see more non-tech companies acquiring technology and fintech targets to keep pace with competitors and expand their own capabilities. A September 2017 report released by the Boston Consulting Group, The 2017 M&A Report: The Technology Takeover, found that the percentage of technology acquirers from outside the tech industry has grown by 9% since 2012, to around 70% of all tech transactions. This same report also found that almost one in every five M&A transactions involved a technology target.

The second biggest driver for M&A activity in 2018, as predicted by 44% of respondents, is the recovery and strengthening of the global economy. The managing director at an investment bank in Hong Kong explains: “The global economic conditions have improved, creating space for healthy growth and opportunities for global expansion. Inorganic growth has become the main priority for a lot of companies.”

Q6 What will be the main deterrents to M&A activity in 2018?

A volatile macroeconomic climate confronted dealmakers in 2017, with the introduction of a new US administration, Brexit negotiations, increased capital control regulations in China, and political instability in South America. So it comes as no surprise that respondents believe these issues will continue to hamper M&A activity in 2018. Some 64% of those surveyed say that this will be the greatest deterrent to deal activity.

Respondents say the potential for changes in policy and regulation could impact deals, and despite optimism that economic conditions are improving, they call the current market “fragile,” with the potential to backfire.

The CFO of a corporation in the US explains: “Due to the various political changes in areas like the US, Europe and Latin America, a lot of companies have experienced a value drop. That’s what investors fear too, a value drop in something they’ve invested in.”

64%

Acquisitions to drivedevelopment of technologyand innovation

44%Strong global economy

40%

Corporate drive forinorganic growth

20%

Consolidation in the faceof sector competition

16%

Cash on corporatebalance sheets

12%

Increased private equity &venture capital dealmaking

4%Other, please specify

Q5 (select top two)

9

An abrupt turn in the economic cycle was the second most cited deterrent to dealmaking, with 48% saying this would cause hesitation about executing deals in 2018. The International Monetary Fund (IMF) predicted an increase in world growth from 3.1% in 2016 to 3.5% in 2017 and 3.6% in 2018, reflecting recovery in investment, manufacturing and trade. But despite the optimistic forecast, dealmakers are erring on the side caution

One partner at a US PE firm explains that he expects dealmakers will opt to wait it out: “A sudden shift in the economic conditions can cause a lot of damage, which is making everybody a little paranoid regarding investment. A lot of investors are going to wait it out and would rather take a step back because the major markets still have instability.”

Q7 What will happen to the number of global IPOs in 2018?

IPO activity has been strong throughout the year. According to EY’s Global IPO market Q3 report, IPO volume in the first three quarters of 2017 has already exceeded the full-year totals for 2016. During the first three quarters of the year, we have seen 1,156 deals worth US$126.9bn in the first nine months of 2017, an increase of 59% by number of IPOs and 55% by proceeds compared with the first nine months of 2016. The report predicts that 2017 will be the “best year for global IPO performance since 2007”.

Survey respondents say that not only is this trend due to continue but, in 2018, it will increase. Some 68% expect the number of global IPOs will increase by 5%-10% or more over the coming 12 months.

Technology IPOs were numerous this year. And while BlueApron and Snap enjoyed blockbuster debuts before slipping to disappointing performances (down 47.8% and 16.1% respectively), IPO success stories include real estate listings site Redfin, which was priced at US$15 on July 27, and is now up by 57.3% to US$23.60, and little-known cloud-based artificial intelligence provider Veritone, which has received a staggering return of 258%.

Many respondents name improvement in market conditions as a main driver for IPO listings to increase in 2018. One partner at a US investment bank says: “The chances of getting good value has increased compared to the last few years. The global market is going to maintain steady growth, and that means that there will be an increase in global IPOs.”

Shortage ofhigh-qualitytargets

Implementationof protectionistand anti-globalistpolicies

High valuations

Abrupt turn in theeconomic cycle

Political instabilityin US, Europe,and Latin America

64%

48%

36%

32%

20%

60%Increase by 5-10%

20%Remain within 5% of thisyear’s total

12%Decrease by 5-10%

8%Increase by 10% or more

Q7

Q6 (select top two)

VENUE® Market Spotlight: 2018 Outlook

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Computer software; Financial services

ELLIOTT

Acquires

GIGAMON

$1.6B

OCTOBER 27, 2017

Technology

SWITCH,

INC.

IPO

$531M

OCTOBER 6, 2017

Computer software

MARLIN EQUITY

PARTNERS

Acquires

BAZAARVOICE

$521M

NOVEMBER 25, 2017

Internet/ecommerce; Real Estate

WEWORK

Acquires

MEETUP

NOVEMBER 25, 2017

Computer software; Services

MCAFEE

Acquires

SKYHIGH NETWORKS

NOVEMBER 25, 2017

Computer: Semiconductors

MARVELL

Acquires

CAVIUM

$6B

NOVEMBER 23, 2017

Computer services; Computer software

SYNOPSYS

Acquires

BLACK DUCK SOFTWARE

$548M

NOVEMBER 1, 2017

Energy

FORTIS

Acquires

ITC HOLDINGS

$11.3B

OCTOBER 14, 2016

Leisure

CIVEO

Acquires

NORALTA

$289M

NOVEMBER 25, 2017

13

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