Transformative Deals Drive Surge in Deal Value in First Half of 2014, According to PwC

Transactions valued at $10 billion or more account for approximately 50 percent of deal value
Businesses look to align core strengths with shifting global dynamics in search for growth


NEW YORK – July 24, 2014 – Transformational deals pushed total deal value in first half of 2014  to the highest level since the first six months of 2007, as strategic and financial buyers look to new markets, channels and products to fuel their growth, according to PwC US.  The ongoing shift toward transformative deals reflects a strategic effort by businesses to execute on transactions that fundamentally change their business model or the scale of their enterprise to strengthen their long-term growth prospects, according to PwC’s mid-year M&A outlook, released today.

“Companies are proactively looking for opportunities to grow, expand their footprint and adapt to changing industry and macro-economic trends to position themselves for the future,” said Martyn Curragh, PwC’s U.S. Deals leader. “Shifts in economic power, demographics and rapid technological advances are changing the global business landscape. Companies are using a range of deal structures and opportunities to transform their businesses, build on their core strengths and find growth over the long-term.  Based on current deal trends, fundamentals and an improving global economy, the appetite for deals could push 2014 total M&A activity and value to the highest level in the past three years.”

While deal volume was flat in the first half of 2014 compared to the same period last year, deal value surged to $982 billion compared to $570 billion in the first six months of 2013.  Deals greater than $10 billion represented approximately 50 percent of total 2014 deal value versus approximately 30 percent in the same time period in 2013. There were a number of announced deals valued at more than $50 billion, including Time Warner Cable Inc./Comcast Corp. and DirecTV Inc./AT&T Inc.

Corporate deals made up the majority of deal activity with 83 percent of volume and 89 percent of deal value. “We’re seeing a more confident base of CEOs who are more upbeat on the global economic environment, yet focused on the dynamic forces that are impacting their markets, industries and customers.  As a result, corporates are being aggressive in their pursuit of quality assets that align with their differentiated capabilities, bring synergies and deliver revenue growth,” added Curragh.

Between 2010 and 2013, the percentage of transformational deals increased from 29 percent to 44 percent, according to PwC’s 2014 M&A Integration Survey. The focus on transformative deals is also reflected in PwC’s 17th Annual Global CEO Survey, which showed 72 percent of CEOs are looking for transformative activities to grow their business.

Along with an increase in deal value, deal multiples have expanded in the first half of 2014 relative to the same period last year.  A PwC analysis of the underlying trends indicates buyers are expecting higher near-term growth in profits.  Control premiums tell a similar story.  Buyers continue to pay premiums in ranges similar to 2012 and 2013, despite significant appreciation in public equity prices.  According to PwC, this reflects the increase in transformational deals that is expected to generate significant synergies.

“While companies are paying up for assets, they need to keep a sharp focus on valuation assumptions they make as part of their front-end diligence,” said Curragh. “Bringing in back-end integration teams earlier can help validate the valuation commitments embedded in the purchase price and help improve the probability of value creation. These teams can bring objective, realistic expectations and ensure value is captured.”

Private Equity transactions accounted for 11 percent of total deal value and 17 percent of total deal volume through the first half of 2014, or $104 billion and 944 transactions.  “Private equity has been cautious on their buy-side approach but continued to take advantage of rising equity markets and investors’ appetite for growth stocks to exit existing investments, including accessing the open and robust IPO market,” said Andrew Cristinzio, PwC’s U.S. private equity leader.  PwC’s Q2 IPO Watch noted that the 160 IPOs in the first half of 2014 was a 65 percent increase over the same period last year, and was largely driven by financial sponsors, which backed 76 percent of second quarter 2014 total IPO value.

According to PwC, while the overall strength of the capital markets is also providing financing opportunities, financial sponsors face stiff competition from corporates and higher prices, limiting opportunities for new platform investments. Instead, they are streamlining and improving operations across their portfolio, returning cash to investors from their exits, and raising new funds, which will provide more fuel for deal activity going forward.

Divestitures through June 30 remain at peak levels, accounting for 30 percent of total deal value for the third year in a row.  According to PwC, the steady level of divestiture activity over the past three years reflects corporates' ongoing commitment to actively manage their portfolio of assets.

Companies remain open to divesting non-core assets that don’t fit into their long-term strategies and or align with their capabilities. PwC is seeing well-prepared and agile businesses making faster decisions around the future of certain assets once they recognize the benefits of having that asset under different ownership or as standalone businesses.  Conducting comprehensive independent portfolio reviews is the first step in helping businesses reshape portfolios, unlock shareholder value and enable a deeper strategic focus on their core capabilities for sustainable growth.

Cross Border deal value increased significantly to $308 billion in the first half of 2014 from $98 billion in the same period of 2013 as U.S. businesses pursued larger deals in international markets. The trend of larger cross border deals reflects increased confidence in overseas markets, especially in Europe, according to PwC. In the first half of 2014, several announced cross border transactions involved decisions to domicile outside the United States.

While dealmakers are mindful of issues that can derail cross border transactions such as currency volatility, tax effects, and different regulatory environments, they are more open to finding ways to navigate these issues if they can deliver new market opportunities, says PwC.  That approach combined with an improving global economy is also leading U.S. companies to explore and execute on larger deals, a trend PwC expects to continue.

Industry Insights Notable industries that PwC expects to present opportunities for deal activity in 2014 include:

  • Healthcare Second quarter deal activity increased substantially over last year to $217 billion by U.S. acquirers in first half of 2014 from $74 billion in the first half of 2013, accounting for 25 percent of total deal value by U.S. acquirers in the first six months of 2014. Transformational mega deals and the convergence of payers, providers and life sciences continue to drive health industry deals as businesses navigate the new health economy. This new environment is giving businesses an opportunity to use transactions to control the delivery model cost structure and create more efficient processes. Deal values in the space are rising, witnessed by 22 transactions valued at $1 billion or more in the first half of 2014, as dealmakers acquire assets that can deliver synergies, and eliminate duplicative services. Similar to other sectors, divestiture activity in healthcare reflects faster and more focused decision making on underperforming assets.
  • Communications – Two of the three largest announced transactions in the first half of the year occurred in the communications space.  Both deals continue a long-standing consolidation trend in the service provider space, but deliver transformational platforms in addition to the typical objective of creating scale. Among other trends in the space, consumers continue to diversify their content and access relationships.  As a result, to maintain consumer pricing, access providers are looking for ways to enhance the value of the distribution network through innovation and technology acquisitions (e.g., home health, home security, home automation).  PwC expects this trend will continue, and may lead to unique transactions among parties across the communications, media, and technology sectors.  On the whole, disruption across the sector is expected to continue to promote M&A as a viable path for growth and protection of existing business models.  
  • Industrial Products – Despite modest overall deal volumes, there continues to be a strong appetite from strategics to explore deals that can fuel growth and strengthen core capabilities. Those objectives have led to larger industrial products deals as well as tuck-in transactions that can bring new technologies to strengthen core products and services. With economic uncertainty still a barrier in select markets, deals focused in regions with well performing manufacturing sectors, such as the outperforming U.S. manufacturing sector, are generating the most interest. Given the relationship between levels of production and manufacturing M&A, we believe deal activity will stay focused on established markets with assets that generate opportunities for growth.

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, including Strategy&, which spans 75 countries. The result is deals capabilities that include a unique combination of front-end strategy and deal origination, diligence, and post-deal value capture.In addition, our network firm PwC Corporate Finance provides investment banking services within the U.S.  For more information, visit

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