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US dealmaking continues to rise

Global Capital Confidence Barometer | US highlights | 15th edition

US executives maintain strong M&A intentions amid sector disruption.

If the deal markets are moderating, don’t tell US dealmakers — their merger and acquisition plans are stronger than ever.

One year after global M&A set an all-time value record, our 15th Capital Confidence Barometer finds US executives setting their own record: their strongest deal intentions since we launched the Barometer more than six years ago. Yet they are also evaluating deals more selectively than ever, a sign of a complex market but also a sturdy one.

Three-fourths of our US respondents plan to pursue deals in the next 12 months. That 75% proportion both tops this Barometer’s global deal intentions (57%) and edges the previous US Barometer high of 74%, set one year ago.

It is instructive to compare these two deal markets, in late 2015 and late 2016. Last year at this time, M&A was already solidly into record territory, driven by an ongoing megadeal wave that first jump-started the markets back in 2014.

However, deal volume remained largely flat, and that bulge-bracket trend has eased considerably — especially in the face of increased regulatory oversight that saw several major deals fail to complete.

Strategic dealmaking on the rise

The deal markets of 2016 are less megadeal-driven and, one might argue, more strategic. Companies are eyeing smaller, more tactical M&A: 98% of US respondents are focused on deals under US$1 billion. They are transacting and partnering across industries, acquiring innovation and talent where necessary.

These are markets of both challenge and choosiness.

US companies harness technology to manage disruption

Executives tell us technological disruption is upending their business models and that inorganic growth is their surest route to growth. Yet at the same time, deal pipelines are small — one to two deals is the norm (83% of US respondents) — and assets are getting pricier (87% say valuations are somewhat or significantly higher). Moreover, virtually all respondents (95%) tell us they have walked away from deals in the last year.

Companies know the best assets will cost them, but that they need not sacrifice quality or strategy for growth. “Disruption” has been a business buzzword for several years — and to be sure, the forces of innovation and changing customer preference continue to roil numerous US sectors.

Encouragingly, however, some of the same technologies that are challenging business are helping dealmakers. Large majorities of our US Barometer respondents say they are using analytics and big data to identify targets, find synergies and enhance due diligence.

US companies have led the globe in adapting to technology, and they are leading the way in harnessing these tools to manage their own disruption — a healthy sign for the future of M&A.