Key trends that could see M&A scale new heights in 2015
London, 26 January 2015
- Global M&A value soared 30% in 2014 – the fourth highest year in history
- 2014 was the second highest year in terms of value for the US, executives are now reengaged with M&A as a route to growth
- Emerging trends in 2014 are set to accelerate in 2015
The resurgence of mergers and acquisitions (M&A) in 2014 looks set to continue through 2015 as strong fundamentals and the search for growth bring executives to the deal table. Five key trends in 2015 should ensure that the deal market remains on target for sustained growth.
- 2015 set to be the sequel to 2014’s megadeals
The M&A story 2014 was the return of the megadeal, with 32 US$10b+ announced – underpinning a year of soaring M&A value globally. The total value of M&A in 2014 was US$3.2t (up 30% on 2013). It was the fourth highest year on record behind 2007 (US$4.1t), 2006 (US$3.5t) and only US$40b behind the dotcom boom fuelled deal environment of 2000.
Pip McCrostie, EY’s Global Vice Chair – Transaction Advisory Services, says:
“The search for top-line growth will influence deal-making in 2015. Megadeals will continue to hit the headlines as executives hunt for growth.”
- A focus on the core should see the mid-sized deal return to lift M&A volumes
While M&A value globally in 2014 hit highs not seen since before the financial crisis, deal volumes – though growing at 6.4% – remained relatively low. The deal volume was down on 2010–2012 levels and well below 2006 highs.
McCrostie says: “The appetite of executives to acquire in 2015 is at its highest for three years and pipelines are swelling with mid-market-sized deals. More companies are focusing on mid-market assets, acquiring in or adjacent to their core sectors – boosting market share, managing costs and improving margin.”
- The global economy – challenge or opportunity?
Much like 2014, low or slow growth and ongoing uncertainty in the Eurozone continues to hold challenges for some dealmakers. Others will see this as an opportunity. The divergent economic performance expected in 2015, with the US and UK outpacing the Eurozone, China’s growth moderating, and India and Japan at a crossroads, will provide further stimulus for M&A activity.
McCrostie says: “We should see increasing cross-border deal-making between the US and Europe and a strong flow of outbound acquisitions from China and Japan. As a result, we expect activity across an even wider range of sectors in 2015.”
- Portfolio, pipelines and private equity
Deal pipelines swelled during 2014, pointing to more activity in 2015.
McCrostie says: “Companies are now focusing more regularly and more rigorously on optimizing their portfolios. In a low-growth environment, this is a critical route to growth – creating buy-sell churn as they reevaluate their core business and assets.”
Private equity is set to be bigger a player in and among the asset churn. There was a strong pick-up in PE activity in 2014 – particularly in the mid-market – with deals such as Carlyle-Dealogic fuelled by strong financing. PE deal activity in terms of value overall was up 27% in 2014 – and an astonishing 68% in terms of volume in the US$1b to US$5b deal range.
- Spin to win?
The increased spin-off activity seen in the US in 2014 as a result of ongoing portfolio optimization will continue to be strong. The trend is also traveling to Europe as companies become even more focused on how their assets align to their strategy.
McCrostie says: “The deal world will spin faster in 2015. Spinning and selling are the watchwords across a number of sectors. For example, low oil prices should drive further consolidation, disposal of non-core assets, divestments and swaps. In terms of consumer products, further portfolio and brand realignment is in the cards. In addition, a hunt for high-end brands in key emerging markets with growing middle classes is anticipated.
“Life sciences – which saw some of the highest profile megadeals in 2014 – should also continue to transact, underpinned by a focus on new therapeutics, pipeline and patent replacement.
“The megadeals of 2014 have increased overall confidence in M&A. This will trigger broader activity across the deal chain in 2015 – particularly in terms of mid-sized deals. Notwithstanding major geopolitical or economic shocks, we can expect even more activity in terms of megadeals and mid-market activity this year.”
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