The past few years there has been no limit to the number of bullish projections for M&A activity for the coming year. Most of these forecasts cited low interest rates and the tremendous amount of cash on corporate balance sheets as reasons for an improved M&A climate. As can be seen from the mergermarket chart below, these forecasts have been overly optimistic. Deal activity has been mostly flat and deal volume only looks as good as it does for 2013 because of a couple of blockbuster deals – Dell and Verizon.
Pip McCrostie, EY’s Global Vice Chair, Transaction Advisory Services, says: “While the last quarter of 2013 saw modest improvement on the economic front, the M&A situation remained bleak. As a result, deal inertia continued as many companies opted to spectate rather than participate in the M&A market. But 2014 should finally see the turning point in this prolonged M&A recession. Deal fundamentals are strong in terms of cash and credit availability. Improving boardroom confidence means many large corporates are planning to achieve growth through acquisition in 2014.”
One recent opinion is that an upward change in the interest rate environment will actually help M&A: “The theory has been that the low interest rate environment would spur deals, but it is actually more the case that M&A activity will increase once rates start rising and corporations realize the window of cheap financing is closing,” says Gregg Lemkau, co-head of M&A at Goldman Sachs. (December 20 http://on.ft.com/1cUhSTF)
The pent-up demand theme has been a constant the past 2-3 years: “There is a lot of pent-up demand among corporates; much of the organic growth and restructuring has already been done, so we are expecting to see much more in terms of strategic deals to drive industry positioning and earnings,” says Paul Parker, global head of M&A at Barclays.
A few other views:
Corporates see global M&A pick-up, riskier bets in 2014 –survey (Reuters, December 3)
Dec 3 (Reuters) – Companies expect a 17 percent rise in mergers and acquisitions activity next year that would push global deal volume to its highest level since 2008, according to a survey from Thomson Reuters and Freeman Consulting Services.
Respondents to the annual survey also forecast 2014 would see more expansionary and transformative deals, moving away from a current trend of buying undervalued assets or divesting non-core assets.
The survey canvassed the opinions of more than 120 corporate decision-makers globally, including chief financial officers, treasurers and other managers from businesses ranging from small, regional firms to large global conglomerates, on their outlook for 2014.
Look for dealmaking to pick up in 2014, pro says (CNN, December 16)
Robert Kindler may have been off by 12 months when he predicted that 2013 would be the year that mergers and acquisition activity picked up.
Kindler, the head of global M&A at Morgan Stanley, made a new forecast Monday, telling CNBC’s “Squawk on the Street” that after 12 drowsy months, dealmaking volume should increase 10 percent to 15 percent in 2014. He also expects to see more cross-border and stock deals, especially if stock prices continue to rise.
“I did think sitting here that it would be a great year for M&A and it ended up being a flat year,” he said. “It’s hard to know. I think part of it is there’s been uncertainties in the market, but part of it was that the market really ran this year. The market ran, but CEOs and managements hadn’t really changed their view of the world, so valuations got out of whack.”
According to a survey by KPMG LLP, the U.S. audit, tax and advisory firm, merger and acquisition (M&A) activity is expected to remain solid throughout 2014. Of the more than 1,000 M&A professionals, investors and advisors who participated in the survey, 63 percent anticipate that their U.S. companies or clients will initiate at least one acquisition in 2014. Thirty-six percent of respondents expect that their companies or clients will complete a divestiture in 2014.
Four of the top five mergers and acquisition investment banks in Australia aren’t exactly hollering from the rooftops that 2014 will be a better year in M&A volume than 2013.
Well, Australia isn’t that big a market. As part of Alacra’s business is M&A dependent, we read all the forecasts but don’t place much confidence in them.