June Uptick and Active Deal Pipeline Points to Positive M&A Momentum in Second Half
Divestitures on the Rise; Interest in Developing Markets Remains High
Private Equity Nimble to Find Right Exits
NEW YORK, July 18, 2012 – While uncertainty over the global economic environment and volatile equity markets significantly slowed U.S. deal volume earlier in the year, an uptick in activity during the end of the second quarter, in conjunction with an active pipeline, indicates the M&A market is regaining momentum, according to PwC US. With corporations focused on executing targeted growth strategies, reshaping their businesses to prosper in the current economic environment, and preparing to execute and close on transactions in the pipeline, PwC expects U.S. merger and acquisition (M&A) activity to accelerate into the second half of 2012.
“Deal activity has continued at a measured pace over the last several quarters. The uptick in deal value and recent climb in the rate of deals in the second quarter adds to growing levels of businesses looking to execute on transactions,” said Martyn Curragh, PwC's U.S. Deals Leader. “During the first half of 2012, we’ve been extremely active in working with clients to prepare for a range of transactions. As deals continue to emerge from the backlog, we expect to see an increased level of activity in the second half of the year.”
Corporates continue to grow cash reserves –with S&P 500 companies' combined cash totals reaching nearly $1.1 trillion as of March 2012 – in addition to more readily available debt financing. According to PwC, both factors provide additional flexibility for buyers and bode well for an uptick in activity.
There were a total of 3,870 transactions and $350 billion in disclosed deal value during the first half of 2012, compared to 4,606 deals and $592 billion in the same period of 2011. In the second quarter of 2012, there was a considerable uptick in disclosed deal value with $218 billion and a total of 1,891 deals, demonstrating a 'high' for aggregate disclosed deal value in recent quarters. By comparison, there was $132 billion in disclosed value and a total of 1,979 deals in the first quarter of 2012. In June alone, total deal value reached $76 billion, the best month for M&A value since October 2011 when deal value totaled $88 billion.
Middle market deals accounted for $123 billion, or 35 percent, of total deal value – a notable uptick for the first half of 2012. In terms of volume, middle market transactions contributed nearly 98 percent of total deal activity in the first half with 3,788 deals. The competition for middle market transactions is driving up the valuation of these deals, placing even greater importance on robust diligence of revenue growth and operational improvement opportunities and development of the post-deal integration strategy earlier in deal preparation, according to PwC.
“Deals slowed earlier in the year as a result of challenging debt markets and companies being more cautious in their M&A strategies. In taking a more thorough approach to processes and diligence, dealmakers focused on ensuring a successful outcome in what was a very uncertain macroeconomic environment,” said PwC's Curragh. “Patient private equity and corporate dealmakers are evaluating every potential scenario with thoroughness of diligence taking priority over speed of execution. That cautious and flexible approach is paying off. With macroeconomic economic conditions having somewhat stabilized and a building pipeline of transactions in recent months, we expect deal activity to increase in the second half of 2012 as these preparations move toward execution and close.”
Divestiture activity is on the rise, accounting for nearly 28 percent of overall deal volume in the first half of 2012 versus 22 percent in the same period of 2011. As more companies look to reshape their businesses by divesting of "orphan" or non-strategic assets to focus on core revenue generators, sell-side diligence has played a more prominent role in preserving the seller’s deal value, expediting deal close and enhancing the potential for buyers to optimize financing.
Private equity players are also stepping up, eagerly pursuing middle market deals across a range of industries and exiting investments at a faster rate than in previous quarters. Private equity buyers accounted for 17 percent of activity and $46 billion in the first half of 2012. While the majority of IPO activity and value has been largely driven by financial sponsors, private equity continues to enhance their prospects for exit by preparing for a variety of scenarios, according to PwC.
“The deal market continues to be extremely competitive, with experienced buyers scrutinizing every aspect of a potential asset. They are asking for greater levels of financial and operational information to increase their visibility into a potential acquisition and well-prepared sellers who are able to meet those demands, are enhancing their prospects of getting a deal done expediently,” said Tim Hartnett, U.S. Private Equity Leader. “Private equity funds have also significantly increased the number of exits over the first six months of the year, and are preserving optionality in readying their portfolio companies for multiple monetization possibilities – go public, be sold or secure additional debt financing.”
According to PwC's recently released 15th annual Global CEO Survey, 40 percent of U.S. CEOs are planning an acquisition in an emerging market this year, compared to 28 percent of CEOs in other parts of the world. The increase in outbound deals during the first half has exemplified that sentiment as U.S. outbound activity accounted for 28 percent of total deal activity versus 26 percent during the same period of 2011. “Clients are activating our connections across the PwC global network of firms to pursue deals in developing markets, where successfully navigating the transaction to close requires both local and U.S. experience,” added PwC's Curragh.
Notable sectors that continue to present opportunities include:
PwC’s Deals practitioners help corporate and private equity executives navigate transactions to maximize value and returns. In today's increasingly daunting economic and regulatory environment, 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 the business-wide risks and value drivers in their transactions for more empowered negotiations, decision making and execution. Clients can then expedite their deals, minimize 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 over 1,400 deal professionals in 21 cities in the U.S. and over 9,800 deal professionals across a global network of firms in 75 countries. In addition, our network firm PwC Corporate Finance can provide investment banking services within the U.S.
PwC firms help organizations and individuals create the value they’re looking for. We’re a network of firms in 158 countries with close to 169,000 people who are committed to delivering quality in assurance, tax and advisory services. Tell us what matters to you and find out more by visiting us at www.pwc.com.
© 2012 PricewaterhouseCoopers LLP, a Delaware limited liability partnership. All rights reserved. PwC refers to the US member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details.
# # #