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Leaders of a number of top mergers and acquisitions practices in the United States remain sanguine about the global environment for deals, in spite of a recent report suggesting that a rise in protectionism is pushing dealmakers to look within national boundaries for opportunities.

While highlighting a busy first half of 2018, Mergermarket earlier this week concluded that an overall buoyant market was driven by domestic tie-ups, rather than cross-border transactions. The logic? A rise in tariffs, the threat of a trade war, and greater scrutiny over foreign acquisitions of American assets is creating uncertainty over cross-border deals.

The report found that in the first six months of 2018, global M&A reached its highest value since the financial crisis, with 8,560 deals adding up to a value of $1.94 trillion. But it also found that only 38.2 percent of this value was driven by cross-border deals. That’s a six percentage point drop compared to the first quarter of 2018.

Jeff Chapman, co-chair of Gibson, Dunn & Crutcher’s M&A practice group, agreed with the broad outlines of the report.

For a period of about five to six years, almost every deal I touched had a cross-border component. And I just got off the phone with a client that’s planning a cross-border deal,” he said Thursday morning. “But right now we are seeing more domestic than cross-border activity.”

But David Gibbons, global head of Hogan Lovells’ corporate practice, is still spotting plenty of cross-border opportunities.

“It’s a very robust market, so it’s hard to sit back and see how protectionism is stalling things,” he said.

The first half of 2018 also saw a striking number of megadeals, with the 26 tie-ups over $10 billion in value just four short of the total for 2017. According to Mergermarket, the largest of these was an international deal: Japan’s Takeda Pharmaceutical’s $79.7 billion offer for Ireland’s Shire. (Other sources have pinned the acquisition at $62 billion.)

The persistence of cross-border deals of that magnitude suggest that there’s a need to look at the findings of the Mergermarket report with a little more nuance.

It does tend to paint all cross-border deals with one brush,” said Paul Scrivano, the global head of the M&A practice at Ropes & Gray. 

He noted that the drumbeat of protectionism has had an impact on one area: acquirers in China looking to assume control of U.S. tech businesses. That’s on the heels of the Committee on Foreign Investment in the United States’ move to block Broadcom Ltd.’s attempted hostile takeover of U.S.-based semiconductor maker Qualcomm Inc. in March. The White House blocked Broadcom’s $117 billion takeover bid by executive order on March 12, citing the interagency committee’s determination that there was “credible evidence” that the deal would “impair the national security of the United States.”

“There is still a great deal of appetite to do deals,” Scrivano said. “The concerns that we still are hearing have been from counterparties in China and elsewhere in Asia over CFIUS.”

Ed Batts, who leads Orrick, Herrington & Sutcliffe’s global M&A and private equity practice group, came to a similar conclusion.

“I think there’s obviously a notable reduction in the volume of inbound PRC-related deals,” he said. “These days there’s fewer Chinese buyers in the market.”

The trend comes not only as a result of U.S. regulations, but also growing European concerns on security and the Chinese government’s imposition of greater discipline on what its companies can do from a leverage standpoint.

Keeping a Steady Course

Practice leaders are certainly keeping track of the pronouncements that are coming fast and furious from President Donald Trump on trade.

There has been a lot made recently about protectionist statements from the White House,” Scrivano said. “It is true: it’s an uptick, especially compared to other administrations. But there’s a tendency whenever there’s an event like this to make more of it than there is.”

They also pointed to the steady pushback from business leaders and others, as well as the hope that the rhetoric is simply aimed at securing a grand bargain with some of the world’s biggest economies on trade.

Consequently, these firms are not sounding alarms about their own business.

“We’re not concerned in the sense that is this going to have an adverse impact on [any] one of our key regions,” Gibbons said.

Gibson Dunn and Orrick have both recently increased their global footprint.

We’re much bigger in Europe than we used to be, and we’re much bigger in Asia,” Chapman said. 

Orrick, meanwhile, has recently made partner hires in Beijing and Hong Kong.

“The Chinese companies will still be doing deals,” Batts said. “Some deals that might make sense and would now have a little bit of controversy around them might demand more legal handling than they otherwise would.”