Strong fundamentals boost prospects for dealmakers
PwC forecasts sustained M&A activity for remainder of 2013
With limited supply, speed and agility take on increasing importance
NEW YORK – July 23, 2013 – The fundamentals for strong M&A activity remain in place despite a slowdown in U.S. merger and acquisition (M&A) activity in the first half of 2013, according to PwC US. Buyers remain extremely active in identifying, evaluating and competing to acquire assets in the market. Dealmakers are placing a premium on deal certainty, speed and agility to ensure successful deal outcomes that deliver long term value, according to PwC's U.S. mid-year M&A outlook, released today.
In the first half of 2013, there were a total of 4,587 total transactions, representing $528 billion in disclosed deal value, according to data compiled by Thomson Reuters and analyzed by PwC. Accelerated deal flow in the final months of 2012, a constrained supply of assets for sale, and a lack of confidence in executing on transactions contributed to a drop in deal activity in the second quarter of 2013. As PwC expected in its 2012 year-end M&A outlook, the middle market continued to prop up activity, accounting for 28 percent of value through June 30, 2013.
“Challenges in the M&A market are being driven by a lack of well-positioned assets for sale, not poor deal fundamentals,” said Martyn Curragh, PwC's U.S. Deals Leader. “A shortage of quality assets and a growing list of willing acquirers dictate a need for confidence and greater preparation to execute, from deal strategy through integration. Greater competition is driving valuations and deal timelines, leaving some would-be acquirers to reflect on missed opportunities, and others with buyers’ remorse for failure to capture deal value.”
According to PwC’s 16th annual CEO Survey, CEOs are bullish with at least 75 percent expecting growth over the next year through both organic means and acquisitions. Nearly half of U.S. CEOs said they plan to do a deal in 2013, indicating that dealmaking remains top of mind for business leaders, however, less than one third of those U.S. CEOs seeking a deal completed one in the preceding 12 months. This shift in frequency – and the pace of individual deal participants – is one factor impacting how deals are being executed in today’s increasingly competitive market. With readily available financing, corporate cash levels at $1.29 trillion, and strong equity markets, PwC expects the combination of these critical factors to support sustained deal activity through the remainder of 2013.
“Corporates are seeking opportunities to grow with a strong focus on strategic fit, value creation, and execution certainty. Companies of all sizes, and across all industries and regions, are looking for the right synergies to provide long term growth,” added PwC’s Curragh. “In this slow growth environment, buyers are taking on an ownership mindset earlier in the process, with a focus on agility, speed and flawless execution. Those who are unable to adjust their strategies and integrate quickly may be left second guessing their decisions.”
As stakeholders place greater pressure and emphasis on companies to deliver deal value, companies are focusing on a more thoughtful and comprehensive integration process to quickly deliver on their investment rationale. According to PwC, early capture of deal synergies and value, increasing the knowledge around an asset, and flexible, rapid execution of the integration plan is critical to maximizing the return on an investment.
Divestitures remain a key driver of M&A activity, making up 31 percent of disclosed deal value in the first half of 2013. However, according to PwC, changes in buyer expectation, shareholder pressure and evolving industry and regulatory considerations are among the factors impacting the level of preparation needed on both the buy and sell side for deal certainty. Companies that develop robust divestiture preparation processes are better positioned to successfully exit their businesses in a shorter time frame, avoid sale price erosion, minimize distractions and derive the desired value from the sale.
Private equity deals accounted for 20 percent of total deal value in the first half of 2013, representing a total of $103 billion in disclosed deal value. “Private equity firms are continuing to look at a range of opportunities to monetize their existing investments and are having success by preparing their portfolio companies to tap the debt and equity markets,” said Tim Hartnett, PwC’s Global and U.S. Private Equity leader. “At the same time, private equity players are looking to improve the performance and efficiencies of their portfolio companies’ operations and gain greater industry knowledge to enhance longer term prospects.”
Several sectors are ripe for deals, especially those where technology-driven convergence is a key driver and companies look to complete deals outside of their core competency. Notable sectors that continue to present opportunities include:
For more information, visit www.pwc.com/us/deals
PwC’s Deals practitioners help corporate and private equity executives navigate transactions to increase value and returns. In today's increasingly daunting economic and regulatory environment, our experienced M&A specialists assist clients on a range of transactions from smaller and mid-sized deals to the most complex transactions, including domestic and cross-border acquisitions, divestitures and spin-offs, capital events such as IPOs and debt offerings, and bankruptcies and other business reorganizations. We help clients with strategic planning around their growth and investment agendas and advise on business-wide risks and value drivers in their transactions for more empowered negotiations, decision-making and execution. We help clients expedite their deals, reduce their risks, capture and deliver value to their stakeholders and quickly return to business as usual. Our local and global deal strength is derived from our deal professionals in 35 cities in the U.S. and across a global network of firms in 75 countries. In addition, our network firm PwC Corporate Finance provides investment banking services within the U.S. For more information, visit www.pwc.com/us/deals
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