Fundamentals Strong for Mergers & Acquisitions
NEW YORK -- Continuing access to capital and financing, strengthened balance sheets and divestiture activity will continue to fuel mergers and acquisitions next year, according to PriceWaterhouse Coopers.
This year, divestiture activity in the United States has reached its highest level since 2005.
An acceleration of deals taking place during the final months of 2012 may result in a lull in activity during the first quarter, the accounting and consulting firm suggests. However, these sound deal fundamentals are creating optimism that the balance of 2013 will be a stronger year for mergers and acquisitions, the annual outlook found.
“The fundamentals for sustained M&A activity in 2013 are solid, with improving corporate confidence, increasing private equity activity from both a buy= and sell-side perspective, and relatively healthy debt markets," said Martyn Curragh, PwC's U.S. M&A leader. "There remains strong competition for quality assets as both corporates and private equity continue to seek out deals to fuel their growth and deploy capital. Dealmakers have been very cautious and disciplined in evaluating transactions. They are placing a premium on a thorough analysis of potential risks and exposures and are seeking to ensure there is broad functional support to successfully manage deal execution and reduce the risk of value leakage."
Corporate cash levels remain steady at $1.1 trillion for the S&P 500, PwC reports, an indicator of continued opportunity for companies to put their capital to work through M&A.
In the 11 months ended Nov. 30, there were 7,585 transactions that represented $705 billion in disclosed deal value. In October alone, deal value spiked to a 14-month high, reaching $96 billion and with 754 deals. October was the most active month since August 2011. In terms of deal size -- and with the absence of "transformative" megadeals -- middle market deals have been the "silver lining" for deal activity, accounting for 98% through November. PwC expects this trend in middle market deals to continue in 2013.
As PwC sees it, notable sectors that continue to present opportunities include:
Oil and gas: Both volume and value levels are close to 2011 levels with an increase in megadeals led by private equity funds that have increased their investment and exposure to the energy industry.
- Financial Services: Deal activity remains steady compared to 2011 in terms of announced deals. Despite receding asset quality and valuation concerns across the industry, the prolonged period of implementation of new regulatory standards has created additional impediments to deals.
- Health care and pharmaceuticals: Throughout 2012, health industries M&A activity was hindered by the uncertainty of the presidential election. Now with a near-certain implementation of the Affordable Care Act and its sweeping reforms affeccting business models, PwC expects 2013 to be a banner year for M&A activity across health industries. For health care providers, this momentum will be buoyed by economic pressure to accept lower reimbursement rates and as this pressure mounts, margin compression on single-site or inefficient operators will force divestiture or partnering strategies.
- Technology: While technology deal volume fell in 2012, deal value exceeded the volume in 2011 through the third quarter. Momentum that began in the last quarter of 2011 with large megadeals contributed to a record quarter for deal value. Despite higher overall values through September, PwC expects a slight reduction in full-year acquisition value among technology companies.
Published by The Business Journal, Youngstown, Ohio.
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