Life sciences, healthcare, financial services, tech, oil & gas sectors ready to transact
Deal activity in the first half of 2015 had one of the strongest starts in recent memory, but the second half of the year will see even more mergers and acquisitions (M&A), according to EY. For the first time in five years, more than half of US companies are planning acquisitions over the next 12 months. M&A value surged 55% to $1.143 trillion in the first six months of 2015. US deal volume, however, dropped slightly by 4%, with 5,822 deals announced so far, compared to 6,040 in the first half of last year.
A number of headline popping megadeals drove deal values to near record highs in the first six months of 2015, particularly in the life sciences sector. There were 31 deals announced valued over $10 billion in the first six months of 2015, compared to just 18 in the same period last year, and the highest number ever announced for the first half of a year. It is not just the megadeals that are making noise however, middle-market M&A also picked-up in the first six months of 2015 with 268 deals announced in the $500 million-$1 billion range, up from 257 deals in the first half of 2014. In the $100-$500 million range there were 1,480 deals in the first half of 2015 up from 1,364 in the first half of 2014. According to a recent survey from EY, 89% of US companies are planning lower middle-market deals in the next year. This activity will likely be driven by a greater number of smaller, more innovative acquirers re-entering the market after a prolonged period of inactivity.
“Following an incredibly strong 2014, 2015 is shaping up to be a very good year for M&A,” said Rich Jeanneret, EY Americas Vice Chair, Transaction Advisory Services. “US deal pipelines are full and companies are exuberantly seeking assets to grow and transform their businesses. After a period of intense focus on cost control and organic growth, CEOs are coming off the bench and doing significant deals, but they are keeping their eye on the ball and taking a disciplined approach to the deal frenzy.”
The improving economy, sustained low interest rate environment, and strong US dollar are just some of the factors that are driving acquisitions. Not everyone is acquiring however, a number of companies are looking at divestitures, carve-outs, splits, and spins to optimize their portfolios and focus on core assets that will drive growth. According to a recent EY report on divestments, more than half of companies expect the number of strategic sellers to increase in the next year. This suggests that there will be plenty of available assets for those that are ready to transact.
The corporate dealmaking frenzy is just one part of the equation, and while corporate M&A has spiked this year, private equity (PE) acquisition activity has declined modestly in 2015, impacted by higher valuations and increased competition from corporate acquirers. Year to date, PE firms have invested in 416 deals in the US with a total value of $52.4 billion, an 18% decline in deal value and a 4% decline in deal volume compared to the first six months of 2014.
“2013 and 2014 were very strong years and it’s not surprising that buy-side activity in the first six months of 2015 moderated from the recent torrid pace,” said Jeff Bunder, EY Global Private Equity Leader. “PE investment slowed down in the first part of the year but the capital and impetus to invest was very much still on display. Competition for quality assets has increased with an expanded pool of buyers competing for deals, creating a challenging investment environment. Despite this, many firms are still chomping at the bit and are committed to invest if the right deal comes along.” …
The stage is set for continued M&A activity in 2015 as US businesses are lean and focused, and have plenty of cash in the bank to pursue deals. The strengthening US economy, high consumer confidence, credit availability, and relatively low market risk, are all factors that will catalyze M&A through the rest of the year. The concern however, is that as dealmaking heats up, how will companies outmaneuver the competition to make smart, transformative acquisitions.
“Companies need to gain market share in order to appease shareholders who are growing impatient with slow organic growth. Positive macroeconomic indicators, resurging confidence, shareholder pressure, and cross-border momentum all make the perfect recipe for a strong deal market to continue as companies seek to transform their businesses. For the past several years, we have been waiting for companies to transact in order to beat out the competition and grow, now more than ever it is imperative that companies manage their capital portfolio for growth before the good assets are all gone. The second half of 2015 will be exciting to watch as deal momentum continues,” added Jeanneret.
To read the full report from Ernst & Young visit the News section of www. ey.com.