FTI M&A Activity Forecast Expects Moderation in Transaction Pricing
Merger and acquisition (M&A) activity is projected to be robust this year as progress made on key global macroeconomic concerns, coupled with other market factors, will encourage deal making activity for cash-laden corporations and private equity funds, according to a new report from the Transaction Advisory Services group of FTI Consulting, Inc., the global business advisory firm dedicated to helping organizations protect and enhance their enterprise value.
Despite continued anxiety in financial markets and a disappointing 2011, a clear path is emerging for stronger deal flow and dependable transaction financing. As such, middle-market lenders and bank club deals are expected to provide a strong base of support for these transactions for the remainder of the year.
According to the “State of M&A Report” from FTI Consulting, there is expected to be a moderation in transaction pricing as participants’ value expectations adjust to the reality of lower expected growth rates globally and the resulting implications. This, along with a combination of other developments in the marketplace, will serve to hold deal pricing down and create attractive opportunities for nimble buyers.
Robert Filek, global leader of the Transaction Advisory Services group at FTI Consulting, said: “Despite a sluggish start in the first six weeks of 2012, we believe there are compelling reasons why M&A activity will pick up pace as the year progresses. This will pave the way for solid, if understated, M&A growth. The next couple of years will be pivotal for M&A as buyers look to capitalize on reasonable valuations, relatively cheap financing, motivated sellers and uniquely opportunistic situations to generate growth and create value.”
FTI Consulting believes 2012 also has the potential to be a year of reckoning for many patched-up investments, causing a much more stringent financing environment for deals that are not meeting plan forecasts or market expectations. Buyers that are capable of aggressively restructuring underlying businesses and realigning cost bases to reflect the current harsh realities will find the best opportunities. From a corporate perspective, M&A activity also will be impacted by the precarious financial situation in Europe along with mounting concerns over political gridlock in Washington, D.C., which will continue to weigh on corporate executives’ confidence, leaving them more reluctant to deploy record levels of cash for acquisitions. That being said, while this may serve to dampen some expectations for robust deal activity in the near term, acquisitions will continue to be the favored means to generate business growth for corporate leaders.
FTI Consulting expects a number of themes to prevail in M&A activity in the year ahead and beyond:
Key industry sectors — Key industry sectors to watch in 2012 include healthcare, automotive, government contractors and energy.
To read the complete State of M&A Report from FTI Consulting, click here.