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Capital Confidence Barometer, October 2015 | 13th edition

M&A outlook

Deal intentions, pipeline depth and deal size are all growing as companies take advantage of robust dealmaking conditions — but the new M&A market is led by companies intent on strategic fit and focused on execution.

Question: Do you expect your company to actively pursue acquisitions in the next 12 months?

Do you expect your company to actively pursue acquisitions in the next 12 months?

Highest appetite to acquire in six years…

After a record increase six months ago, the number of executives planning to pursue acquisitions not only holds its gain but rises slightly, remaining well above the Barometer's long-term average. While the rate of increase has moderated, the continued upward trend indicates a sustained appetite for dealmaking.

Question: Please indicate your level of confidence in the following at the global level.

Please indicate your level of confidence in the following at the global level.

...but prudence prevails

Deal fundamentals are also up across the board, with particularly strong increases in the number and quality of acquisition opportunities and the likelihood of closing deals.

What distinguishes this market from prior M&A booms is its judiciousness. Executives are not pursuing deals without a strong strategic rationale, and they are prepared to walk away from those that do not have one. We see further evidence of this discipline in the deal metrics, which, while high, are not yet at levels seen in previous market upturns.

Changing market dynamics encourage dealmaking sentiments

Question: What is your expectation for the M&A market in the next 12 months?

What is your expectation for the M&A market in the next 12 months?

Our current survey shows positive deal-market sentiment accelerating, with a particular shift in the past 12 months from those expecting stability to those anticipating greater activity. This dovetails with other market trends highlighted in this Barometer. The disruption of business models, the blurring of sector boundaries and the drive toward sector consolidation in search of growth are all combining to lift dealmaking at or above record highs.

The vast majority of executives predict the global M&A market will thrive in the next 12 months. This sentiment is driven by executives' positive outlook regarding the global economy and their resilience in the face of a persistently low-growth environment.

Question: What is your largest planned deal size in the next 12 months?

What is your largest planned deal size in the past 12 months?

The real action is in medium-size deals, but megadeals remain prominent

The vast majority of planned investments are forecast to be in the lower middle market. However, the trend since 2014 has been toward more upper-middle-market deals (between US$250 million and US$1 billion), which now make up more than a quarter of planned M&A. This trend corresponds with the direction of the 2015 year-to-date M&A market: We have seen an increased number of deals across all value ranges, except those below US$50 million.

Deals valued at more than US$1 billion dominate current M&A headlines. But while these megadeals are a vital component of total M&A transacted value, they make up a small proportion of the total population of deals. Executives do expect more of these megadeals over the next 12 months, even as only a small percentage of companies plan to pursue them.

Question: How many deals do you currently have in your pipeline?

How many deals do you currently have in your pipeline?

Growth in deal pipelines mirrors improved M&A sentiment

The past 12 months have brought an upward shift in the quantity of deals companies are considering, with three- and four-deal pipelines up strongly from a year ago. The number of companies with more than five deals in their pipeline has also increased.

Looking ahead, we find a majority of companies expecting no change in deal pipelines, likely due to their already robust activity.

Top 10 investment destinations

Stronger growth in the United States and the United Kingdom and the attractiveness of high-quality assets in Germany are making these countries popular investment destinations. China and India also remain attractive destinations for investors, notwithstanding recent concerns about the wider Asia-Pacific region's economic growth and stability.

Eurozone investment appetite increases

More than a quarter of executives have increased plans to acquire assets in the eurozone. This is in part due to companies “catching up” on planned acquisitions in the region, following a period of instability, and attractive pricing due to currency fluctuations. The ongoing program of quantitative easing by the European Central Bank may also help improve dealmaking in the eurozone.

Strengthening growth across the area, together with changes in the euro exchange rate and local asset valuations, will make this a dynamic and fast-moving market for deals in the near term. We could see further inbound investment from China, the US and Japan.

While it may be the world's largest single market, the eurozone's wide range of economic conditions and business environments means investors are picking and choosing where to invest.

Question: Has your intention to acquire assets in the eurozone altered due to recent political events and changes in monetary and economic policy?

Has your intention to acquire assets in the eurozone altered due to recent political events and changes in monetary and economic policy?

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