Daily News: December 9, 2016

Deloitte Survey: M&A Will Increase in First 90 Days After U.S. Elections

Against a backdrop of uncertainty, the M&A market dipped in 2016, but the Deloitte M&A trends report 2016, year-end edition, shows an anticipated rebound in 2017 with 86% of surveyed private equity and 71% of surveyed corporate dealmakers expecting to close more deals in the next 12 months. Many say deal size will increase in the next year as well (64%), according to a pre-election survey.

When asked if M&A will change during the first 90 days after the 2016 elections, 53% of respondents (65% of private equity respondents and 48% of corporate respondents) expected an increase in deal activity.

Market optimism expected after the U.S. elections was apparent amongst survey respondents, who anticipate more M&A — both major transformational and smaller strategic deals — between now and early 2017. Notably, 46% of surveyed corporate dealmakers intend to use their growing cash reserves for M&A — a 16-point jump from Deloitte’s spring M&A trends survey when cash deployments were most earmarked for organic investments.

While Britain’s exit from the European Union remains unresolved, survey respondents were undaunted by Brexit proceedings. Many said that Brexit’s impact on their organizations’ M&A strategies will translate into more deals in the UK (52% of private equity respondents and 44% of corporate respondents) and more deals in the European Union (56% of private equity respondents and 45% of corporate respondents).

The UK continues to rank highly (31%) — second only to Canada (40%) and ahead of third-place China (25%) — among markets in which respondents plan to pursue deals.

Interest in divestitures have risen significantly in recent months with 73% of respondents planning to pursue a divestiture in the next year — up from 48% in spring 2016 and 31% in spring 2015. Financing needs and a change in strategy are noted as the most important reasons for divesting a business.

Technology fuels M&A strategy and gives rise to industry convergence

Acquiring technology assets has surged to tie for the No. 2 spot as the main strategic driver for M&A, more than tripling in importance since Deloitte’s spring 2016 M&A survey. Further, technology is seen as the sector most likely to converge with others (26%) at about twice the rate of convergences expected in financial services, construction, energy, telecommunications and professional services, respectively.

“Nearly all of our respondents acknowledge that industry convergence will continue to occur through transactions in the next few years,” said Russell Thomson, managing partner of Deloitte’s U.S. M&A Services practice.

When reporting on deals completed in the preceding two years, just 10% of respondents said value was not generated from more than half of their organizations’ deals, a significant improvement from 40% in spring 2016.

Unsurprisingly, the top factor in deal success for corporate respondents was effective integration (23%) and for private equity respondents it was proper target identification (21%).

“There’s no substitution for strong fundamentals in M&A strategy,” Thomson said, “Whether it’s effective due diligence, proper target identification and valuation or post-deal integration, success is most typically realized when the strategy preceding all of it is well researched and executed.”

The Deloitte M&A trends report, year-end 2016 edition was fielded online from September 12–20, 2016, by market research firm OnResearch. It polled 1,000 executives involved in M&A at U.S. corporations (75%) and private equity firms (25%). Corporate respondents’ organizations were public (37%) and privately held (63%).