A new report by Deloitte indicates that last year’s robust merger and acquisition activity in the United States is likely to continue in 2015. In its second annual M&A Trends Report 2015, Deloitte found that 85 percent of U.S. corporate executives and 94 percent of U.S. private equity investors responding to its survey expect deal making to sustain or ramp up from 2014 levels in the next 12 months. Respondents to the survey also suggested that market trends will include an uptick in transformational deals, more divestitures of corporate units and private equity portfolio companies, and increased use of technology-driven data analytics to assess M&A opportunities.
Deloitte Survey Signals Strong M&A Activity Continuing
Results reveal significant uptick in transformational transactions, divestitures and data analytics from 2014 report
NEW YORK, April 21, 2015 /PRNewswire/ — According to the findings of the second annual Deloitte “M&A Trends Report 2015,” an overwhelming majority of 2,500 executives at U.S. corporations and private equity firms polled expect the robust pace of mergers and acquisitions to extend — or even accelerate — in 2015.
Last year demonstrated an M&A revival, as 9,802 U.S. deals with an aggregate value of more than $1.5 trillion were reported. The start of 2015 is continuing the momentum, with $414.7 billion worth of U.S. acquisitions announced in the first quarter, its largest first quarter since 2000, according to Fortune. True to this trend, 85 percent of corporate executives and 94 percent of private equity respondents surveyed expect the pace of M&A activity to sustain or ramp up from 2014 levels in the next 12 months. That’s consistent with expectations a year ago, when 84 percent of corporate respondents and 89 percent of private equity executives said they expected activity to remain the same or accelerate.
“We are seeing very bullish M&A activity in a variety of sectors,” said Tom McGee, vice chairman and national managing partner, Mergers & Acquisitions Services, Deloitte LLP. “For companies large and small, public and private, the availability of inexpensive financing, surging equity markets and an urgency to deliver growth has positioned the U.S. potentially to hit pre-recession M&A activity levels in 2015.”
The “M&A Trends Report 2015” builds on research from the inaugural “M&A Trends Report 2014” providing insights into future M&A activity, as well as deal dynamics. Year-to-year survey results reveal a significant uptick in anticipated transformational transactions, divestitures and use of data analytics. In addition, the report sheds light on top sectors and geographies, but also the continued sentiment that many deals fall short of expected returns.
Increased Transformational Focus
Close to 1 in 4 corporate respondents (24 percent) indicate they plan to seek out major transformational transactions, an increase of 5 percent from last year’s survey. On the private equity side, over half the respondents (55 percent) expect enterprise value for acquisitions to be at least $500 million.
Divestitures Seen Increasing
Expectations remain sky-high for increased divestments of private equity portfolio companies, with about three quarters of private equity firm respondents, up from two-thirds last year, anticipating an accelerated level of exits within the next 12 months. On the corporate side, there also are expectations for greater divestiture activity this year. Almost 4 in 10 company respondents report they anticipate shedding a business in 2015, up about a quarter from 2014’s responses. This trend is being fueled mainly by a greater strategic focus on core assets and reactions to marketplace changes.
Data Analytics Use Poised to Grow
More companies and private equity firms are turning to technology-driven data analytics to analyze M&A transactions. On the corporate side, two-thirds of respondents said they deploy data analytics in at least select areas of their deal analysis, up from 58 percent in 2014. On the private equity side, the use of data analytics also increased in the past year, and is even more ubiquitous. More than 75 percent of private equity respondents say they use these tools in at least select areas, up from about 70 percent a year earlier.
Persisting Strength in Multiple Sectors and Geographies
From a sector perspective, technology was tipped as the top industry (29 percent) for the second consecutive year. Despite a decrease in oil prices, energy, specifically the oil and gas subsector, surged to second in the ranks (25 percent), with health care plans and providers in third position (20 percent).
Overseas expansion continues to be a focus with a greater number of corporate and private equity respondents saying in the 2015 survey that they expect to invest or acquire businesses in foreign markets, up from 58 percent and 73 percent, respectively, last year. The top three overseas targets for corporate executives are: China (24 percent), Canada (23 percent), and the U.K. (19 percent). While China remains the top foreign target, the reported percentage is a sharp decline from 2014 when 33 percent cited it as the top foreign destination. Among private equity leaders, the top three overseas markets are: Canada (32 percent), the U.K. (30 percent), and China (27 percent).
Deals Continue to Fall Short of Expected Return
Despite expectations for another blockbuster year, almost 90 percent of respondents said completed transactions have fallen short of generating expected return on investment, the same as last year. On the private equity side, 96 percent of respondents indicated that some portion of their deals fell short of targeted returns. These findings are in line with results from Deloitte’s “Integration Report 2015,” which focused on the post-merger integration phase of the M&A lifecycle
The year ahead shows promise for an increased number of deals and potentially larger value transactions. The optimism is a reflection of an ideal M&A environment that includes ample cash on corporate balance sheets, affordable debt thanks to low interest rates, strong equity markets, and a stable economy forecast to grow at a steady pace.
“The table is set for 2015 to be another strong year for transactions and we’ve already seen robust deal-flow in the first few months of the year,” concluded McGee. “Our second annual M&A trends report shows corporations and private equity firms are pursuing a greater number of targets in more sectors, more markets and, often, with more money.”
From Jan. 28, 2015, through Feb. 10, 2015, a Deloitte survey conducted by OnResearch, a market research firm, polled 2,092 executives at U.S. companies and 408 executives at domestic-based private equity firms in order to gauge their expectations and experiences for merger and acquisition activity in the next year or two.
About Deloitte M&A Practice
Deloitte advises corporate buyers and private equity investors throughout the entire M&A deal lifecycle from strategy development to selecting the right partner and from conducting thorough due diligence to closing the deal. Throughout the integration process or even through a divestiture, we align our services to address clients’ transactional and integration needs, all with the goal of building value for our clients. View the entire report.
As used in this document, “Deloitte” means Deloitte LLP and its subsidiaries. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting.
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