M&A soars to near record highs as window of opportunity for transformative deals remains open for 2014
London, 10 July 2014
The value of global M&A conducted in the first half of 2014 hit US$1.7t and is now at its highest since the deal boom before the global financial crisis. In contrast, the level of activity remains low as flat deal volumes globally show the trend for fewer, bigger deals continuing, according to data released today by EY1.
- Deal value globally 50% higher than 2013; highest point since M&A boom in 2007
- Deal volume remains flat as companies opt for quality not quantity
- Next 6 to 12 month provide ideal window of opportunity for further transformational deals
Market conditions should continue to foster this trend making the next 6 to 12 months an ideal window of opportunity to do transformative deals. Strong fundamentals for deals continue: high equity valuations, low interest rates and cheap debt, as well as strong cash piles provide a highly favorable environment for deal-making.
Investor sentiment is also supportive to bold acquisition strategies as the hunt for high-quality intellectual property and brands continues with businesses searching for growth in a low- growth environment. All of which will continue to foster high-value deal-making.
Pip McCrostie, EY’s Global Vice Chair, Transaction Advisory Services says:
“These ideal conditions for transformative deals will not last forever. Interest rates will rise, equity values will move and the competition for high-quality assets will only become more intense with private equity actively increasingly in the mix. Leading companies will look to do smart and strategic M&A before the current deal climate changes, so we can expect more large, headline-grabbing acquisitions to come.”
2014 – the M&A story so far
The 50% increase in deal value in 2014 has seen the number of US$1b+ deals increase by 35% as companies engage in bolder M&A. Global deal volumes continue to flatline after years of falling activity. However, recent modest increases in deal volume in the US market (up 7.5% in the second quarter on 2013), might point to a future resuscitation of deal volumes globally.
Says Mrs. McCrostie: “Value not volume has been making headlines in 2014. M&A malaise has enveloped the market for many years and in 2014, companies and boards have opted for quality rather than quantity when it comes to deal-making.
“There are some hopeful signs of a return of M&A globally in terms of the number of deals. However, companies are still navigating a very complex set of challenges. Geopolitical issues, modest – and fragile – economic growth and increasing shareholder activism is ensuring that managing costs and delivering measured and sustainable growth remains a permanent feature of this complex business landscape. Within that context, we should only expect a modest increase in deal volume globally in 2014-15.”
Mature markets writing M&A story
The mature markets are driving the M&A story in 2014. In terms of deal value, the top five target countries for assets are: the US, UK, France, Netherlands and Australia. In terms of acquirers, the top five countries are: the US, Canada, Switzerland, UK and China.
In terms of volume, the mature markets are dominant. The top five target countries for assets are: the US, UK, Germany, Canada and Australia. In terms of acquirers, the top five are: the US, UK, Canada, Japan and France.
“As economic growth – albeit modest – returns to mature markets, companies are looking at those economies as less risky options for investment and growth. Emerging high-growth and frontier markets will always be attractive in terms of investment, but safe and secure modest growth is attracting the most investment as the global economy moves into a new phase.”
Tech and telecommunications the hottest of many hot sectors
The value of deals in the telecommunications sector more than doubled in the first half of 2014 with an increase of 233%. Other sectors seeing large increases in deal value include: aerospace and defense (+186%); diversified industrial products (+136%); media and entertainment (+118%); asset management (+110%); and life sciences (+77%).
In terms of volume, technology was the only sector registering anything other than low single- digit percentage growth with a 12.5% rise in the number of deals in the first half of 2014. The sectors seeing the largest falls in deal volume were aerospace and defense and automotive (both -14%), life sciences (-13%) and banking and capital markets (-11%).
Telecommunications, which saw the highest rise in terms of value, saw volume fall by 9% in 2014, further highlighting the established trend of fewer, bigger deals.
Outlook continues to be value not volume, quality rather than quantity
The first half of 2014 is the fourth highest ever in terms of deal value – beaten only by the first six months of 2007, 2006 and 2000.
McCrostie concludes: “The first six months of this year has echoes of the M&A boom years in terms of the size and value of deals. However, as we look forward to the future, looking back to make boom-time comparisons might be misleading. Despite high-value deal-making in 2014, we are not experiencing a boom in terms of the volume of activity – far from it. Despite some encouraging signs from the US in the past quarter, low deal volume globally will likely be part of the M&A landscape for the remainder of 2014 and beyond as companies take highly selective advantage of ideal conditions for big M&A.
“We can expect high-value headline-hitting M&A to continue with an increase in the appetite for much larger deals as executives look to transformational acquisitions to move the needle for topline growth.”
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