Mergers and acquisitions in the U.S. are hitting pre-recession levels once again. Deal values excelled in 2014, with total deals from January through September topping at nearly $1 trillion, an almost 33 percent increase when compared to 2013. Even though the global outlook is not entirely rosy, the U.S. market for M&A deals is booming thanks to lower interest rates, higher stock prices, a reduction in unemployment and, very important, lots of cash lying around.
In a survey of M&A professionals held by KPMG and “Mergers and Acquisitions” magazine, 82 percent of respondents said they were planning at least one deal over 2015, 19 percent say they were planning two or more, and 11 percent were planning several deals. At the same time, the money involved is skyrocketing, as shown in mega-deals like Kinder’s $71 billion consolidation of several entities or the $43 billion acquisition of Covidien by Medtronic. The market seems to be going for quality over quantity, after having learned its lesson from the recession, by being more selective, with large companies looking for good strategic fits and weighing the pros and cons of a possible takeover more thoroughly before deciding to go ahead or not.
When looking at different active sectors, healthcare jumps out immediately as one of the most promising, as the Affordable Care Act is going to drive deal-making to unknown heights. Obamacare, by which it is more popularly known, is affecting the baseline of many companies, and many players, both major and minor, are expected to go on the market during the year. The technology sector is expected to see many deals go through as well, as the industry’s major players continue to buy up smaller competitors in an effort to consolidate their brands. The ultimate goal seems to be to expand current customer base while driving costs down in both of these sectors, as well as in others including manufacturing, energy and finance.
Major headaches for M&A professionals seem to be valuation disparity between buyers and sellers, the challenge of identifying suitable targets for deals and forecasts of future performance. Overall, this of course looms the cloud of volatile energy prices, which affects all these sectors in one way or another.
The center for all this activity is the U.S., thanks to its deal-friendly climate, it accounted for 73 percent of projected deals over 2015. Western Europe comes in second at 14 percent, North America (without the U.S.) at 13 percent, and the world’s number-two economy, China, is forecast to account for 12 percent of deals.
One important thing to note is that foreign buyers might be scared away from the U.S. market as the U.S. dollar continues to strengthen, some analysts warn. But as most of the U.S. activity seems to be domestic to begin with this shouldn’t pose too much of an impact. All in all, M&A professionals are looking at a very busy and hopefully profitable year; it’s as if the recession never happened.